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Startup equity, explained precisely

Every term below is explained the way our engine actually computes it — not a generic definition. Each entry includes a worked numeric example you can check by hand.

SAFEs & notes

Post-money SAFE

The YC 2018+ standard SAFE. Its valuation cap fixes the investor's ownership percentage directly — investment ÷ cap — measured before the next round's money arrives.

Pre-money SAFE

The original (pre-2018) SAFE. Its cap converts at a share price fixed against the company's pre-round fully-diluted shares — not against post-money ownership.

Valuation cap

The maximum valuation at which a SAFE or note converts, protecting early investors from paying a priced-round price for shares they bought before the company was proven out.

Discount rate

A percentage off the priced round's share price that a SAFE or note holder pays at conversion — a reward for investing before the round was priced.

Convertible note

A short-term loan that converts into equity at a future round — SAFE's predecessor, with interest that accrues on the principal until it converts.

Dilution

The reduction in your ownership percentage that happens whenever the company issues new shares — to investors, to converting SAFEs, or into the option pool.

Option pool

Shares set aside for future employee equity grants — conventionally created 'pre-money,' which means existing shareholders (not the new investor) bear its dilution.

Pro-rata right

An investor's contractual right to buy enough of a future round to maintain their existing ownership percentage, rather than being passively diluted by it.

Down round

A financing round priced at a lower price per share than the company's previous round — a sign the market (or the company's progress) has repriced the business downward.

Cap table

The full ledger of who owns what: every shareholder, option holder, and convertible instrument, with share counts and resulting ownership percentages, fully diluted.

Fully diluted

An ownership percentage calculated against every share that could ever exist — granted and ungranted options, and convertibles assumed converted — not just shares issued today.

Liquidation preference

The right of preferred shareholders to be paid a set multiple of their investment before common shareholders receive anything at an exit.

Participating preferred

Preferred stock that collects its liquidation preference AND shares pro-rata in whatever is left over, effectively double-dipping relative to non-participating preferred.

Seniority

The order in which preferred series get paid their liquidation preference at an exit — higher seniority is paid first, out of the same pool of proceeds.

MOIC (multiple on invested capital)

How many times an investor got their money back at exit — total proceeds divided by total invested — the simplest return metric in venture.

Exit waterfall

The full ordered calculation of who gets paid what when a company is sold — preferences by seniority, participation decisions, conversion choices, and the residual split.