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Demystifying Equity: 48 Key Equity Terms Every Startup Stakeholder Should Know
Cap Tables and Equity
Cap Tables and Equity
Understanding the language of equity is crucial for African startups. Our list of 48 common terms breaks down complex concepts with easy explanations and relatable examples.
Abiola Seriki
March 27, 2024
Return To Blog
Demystifying Equity: 48 Key Equity Terms Every Startup Stakeholder Should Know
Cap Tables and Equity
Cap Tables and Equity
Understanding the language of equity is crucial for African startups. Our list of 48 common terms breaks down complex concepts with easy explanations and relatable examples.
Abiola Seriki
March 27, 2024
March 27, 2024
March 27, 2024

Understanding the language of equity is important to navigate the startup ecosystem, especially as a founder, an investor, an operator or an employee. Below, we’ve curated a valuable resource to help you grasp the fundamentals of the industry by providing a list of 48 common equity terms and simplifying the meaning for you. 

  1. Equity: Your share of ownership in a company, like owning a piece of the pie. For example, if a company has 100 shares, owning 10 means you own 10% of it.
  2. Common Stock: Basic ownership in a company with voting rights and potential dividends.  Like being a shareholder, where you can vote and maybe get dividends.
  3. Preferred Stock: Special shares with extra perks like better dividends or priority in sales. Preferred stockholders get their cut before others if the company is sold.
  4. Shareholder: Someone who owns shares of a company.
  5. Vesting: Gradually earning rights to ownership, often as you work longer. You might get more ownership of a company the longer you stay and work.
  6. Stock Option: A ticket to buy company shares at a set price, like a voucher. You can buy shares later at the price you agreed on today.
  7. Exercise Price: The price you pay for buying company shares with your option. This is the price you lock in for buying shares later.
  8. Restricted Stock: Special shares with rules, like when you can sell them. You might not be able to sell them right away or without following some rules.
  9. Dilution: Sharing ownership with more people, like cutting a pizza into more slices. If more shares are made, everyone's piece of the pie gets smaller.
  10. Convertible Note: A loan that can become ownership later, like magic debt turning into shares. Lending money now, but later you might own part of the company instead.
  11. Convertible Preferred Stock: Shares that can turn into common shares if needed. If things change, these shares can become regular ones with voting power.
  12. Liquidation Preference: Special treatment for certain shareholders if the company is sold. For example, they get paid first if there's any money left after selling the company.
  13. Dividend: Sharing profits with shareholders. If the company does well, you might get some extra money.
  14. IPO (Initial Public Offering): Turning a private company into a public one by selling shares to everyone. When a company wants to grow, it might sell shares to the public for the first time.
  15. Market Capitalization: The total value of a company's shares.
  16. Angel Investor: A person who gives money to startups in exchange for a piece of the pie. They're like a guardian angel for startups, helping them grow.
  17. Venture Capitalist: A company that gives money to startups in exchange for a slice of the pie.
  18. Board of Directors: A group of important people elected by shareholders to make big decisions for the company just like the captains steering the ship of the company.
  19. Equity Crowdfunding: Lots of people giving money to a startup in exchange for a small piece of the pie.
  20. Cap Table (Capitalization Table): A document that illustrates who owns how much of the pie in a company.
  21. Pre-money Valuation: Knowing how much a company is worth before getting new money. 
  22. Post-money Valuation: Knowing how much a company is worth after getting new money.
  23. Fully Diluted Shares: Total number of outstanding shares assuming all convertible securities are converted into common stock.
  24. Exit Strategy: Plan for how investors and founders will realize returns on their investment, often through acquisition or IPO.
  25. ESOP (Employee Stock Ownership Plan): Giving employees a piece of the pie in the company they work for.
  26. Accelerated Vesting: Quickly earning ownership rights, often after special events. It's like getting more ownership of a company faster than usual.
  27. Clawback Provision: Rules saying the company can take back your piece of the pie in certain situations such as breaking certain rules or leaving too soon.
  28. Stock Split: Division of existing shares into multiple shares, often to decrease share price and increase liquidity.
  29. Anti-dilution Protection: A way to protect existing shareholders from dilution caused by future equity issuances at a lower price. Making sure existing shareholders don't lose ownership when new people invest in the company.
  30. Good Leaver/Bad Leaver: Terms used to describe the circumstances under which an employee leaves a company, often affecting their equity vesting.
  31. Sweat Equity: Ownership stake earned through contributed work or services rather than financial investment.
  32. ROFR (Right of First Refusal): Right given to existing shareholders to purchase additional shares before they are offered to outside investors.
  33. Down Round: Financing round in which the company's valuation is lower than in previous rounds, often resulting in dilution for existing shareholders.
  34. Upside Potential: The chance for your ownership in a company to grow bigger in the future. It’s the potential for investment returns or equity appreciation in a company.
  35. Downside Risk: Potential loss of investment or equity value in a company.
  36. Equity Grant: Issuance of equity or stock options to employees or other stakeholders as part of compensation or incentive plans.
  37. Phantom Stock: Imaginary ownership that mimics real stock. It's a synthetic equity instrument that mirrors the value of company stock without actual ownership.
  38. Vesting Cliff: Waiting period before you start earning ownership. It's like having to wait for a certain amount of time before you can start owning part of the company.
  39. Liquidation Event: Selling or closing the company and sharing the money. It often results in the distribution of proceeds to shareholders.
  40. Accredited Investor: Someone allowed to invest in certain types of companies that aren't open to everyone. The individual or entity usually meets certain financial criteria that allow participation in private investments.
  41. PIPE (Private Investment in Public Equity): Buying shares of a public company in a private sale before everyone else can.
  42. Series A, B, and C Funding: Different rounds of investing in a startup, so they can grow and be more productive.
  43. Earnout: Getting more money later if certain goals are met. 
  44. Share Repurchase: The company buys back its shares.
  45. Grant Date: The day you officially receive ownership of the company. 
  46. Vesting Schedule: Timeline and conditions under which equity ownership rights accrue to employees or stakeholders.
  47. Section 409A: IRS Tax code for valuing company ownership for tax purposes.
  48. 83(b) Election: IRS election allowing employees to pay taxes upfront on restricted stock at grant rather than at vesting.