## Notes Company equity has the **potential** to payoff in a variety of scenarios. ## Terminology - **Vesting**: period of time to wait in order to gain full control of shares - **Cliffs**: requirement to stay at a company for a certain amount of time before getting **any** equity Example > 1 year cliff with 48 shares over 4 years, vesting quarterly > - 3 months, 6 months, 9 months: 0 shares > - 12 months: 12 shares > - 15 months: additional 3 shares ### Conversion Happens in two timeframes depending on the contract. - **Converting when awarding the grant**: ### Equity Refreshers Basically like refinancing--get a new set of terms for equity, usually for high performers. ### Clawbacks Usually have to give back sign-on bonuses if leaving before a certain time. ### Post-termination Exercise Window Describes what happens to vested, but not exercised stock, when leaving the company. Usually the window is 90 days. Subject to high taxes. Some startups are offering 10-year windows. ### IPO Lockup Period Describes a period of time following IPO when you cannot sell shares that have vested. ## RSUs *Restricted Stock Units* are only offered by publicly-traded companies. This means that you would get a specific *amount* of stock that *vests* over a *given time period*. ## Double-Trigger RSUs Private companies allocate stock to employees that vests similarly to RSUs. The problem is that awarding RSUs means I would have to pay taxes on the stock value, but I can't sell the stock because there's no market to sell it. Double trigger delays the vesting until IPO, so taxes are only due after IPO. ## Phantom Shares Is similar to RSUs. This "mock stock" follows the company stock price and pays out profits after vesting. - Appreciation-only: not full stock price, only the difference - Full value: full stock price, including difference ## SARs Stands for "Stock Appreciation Rights". Middle ground between options and RSUs; most similar to phantom stocks. Employees gain the increase in stock price during a pre-defined period. See also [Stock Appreciation Rights - Investopedia](https://www.investopedia.com/terms/s/sar.asp) ## Virtual Shares & Options **Virtual Shares** are a synonym for [[#Phantom Shares]] and only trigger on a financial event (IPO/sale) and vests. **Virtual Options** also help with tax implications. ## Growth Shares You can only get shares after a company has grown. For example, worth nothing until the business grew by x%. ## Dilution Occurs when company raises additional investment, and the investors get stock. ## Taxes Is a wild west and unknown, but they will be due. They can be a lot of money. See also [Secfi](htps://secfi.com) ## Reference - [Equity for Software Engineers - Pragmatic Engineer](https://blog.pragmaticengineer.com/equity-for-software-engineers/) - [Phantom Stock - Investopedia](https://www.investopedia.com/terms/p/phantomstock.asp)