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Lesson 1


WHAT IS EQUITY?

The short answer: Equity is partial ownership in a company. Walk through why
owning equity in a private company can have seriously life-changing results.

Click for sound





3:43









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Video transcript
EQUITY 101 GLOSSARY
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Video transcript
EQUITY 101 GLOSSARY
Overview
1What is equity?
2What’s a cap table?
3Equity grants, explained
4How vesting works
5How exercising equity works
6How to sell your shares
7How are equity grants taxed?
8Valuations, explained
9Who can invest in startups?
10How venture capital works


Lesson 1


KNOWLEDGE CHECK

 * What’s the reason most people don’t claim their equity when it’s offered?
   Not quite! The right answer is highlighted in green.
   That's correct!
   It’s worthless. Taxes always cost too much. It’s too confusing, which is why
   we made these Equity 101 videos!
 * Why is it meaningful to have equity in a company?
   Not quite! The right answer is highlighted in green.
   That's correct!
   It gives you partial ownership—if the company does well, so do you. It helps
   people build wealth. It incentivizes long-term investment. All of the above.
 * If you receive company equity, you will immediately own shares _____
   Not quite! The right answer is highlighted in green.
   That's correct!
   Always. Sometimes. Never.




VIDEO TRANSCRIPT

If you’re watching this video, then you’re likely considering taking a job at a
startup, or maybe you’re already an employee or a founder or an investor who
wants to understand a little bit more about how equity actually works. In order
to do that, we have to start with this basic question, right? And that question
is: What is equity? 

And the simple answer is equity is a form of compensation where your employer
gives you partial ownership in the company. Usually this is going to come in the
form of shares of some kind. So you can buy shares of a public company on the
public stock market, but you can also have shares of a private company—and
that’s the kind of equity that we’re talking about here. Private company
shares. 

There are a bunch of different types of shares that you can get, like options or
RSUs, all of which we’re going to learn about in the next few lessons. But if
you remember anything from the get-go, the most important thing to know about
equity is that it really can have seriously life-changing results.

If you were an early employee at one of these big behemoth companies like
Facebook or Uber, then the equity that you were given in those early days might
have made you pretty wealthy when the company eventually went public. And these
are the stories that we hear a lot about, right? The big IPOs and the
billion-dollar acquisitions. 

But the reality is that most people, they typically benefit from a more modest
exit. Their company will be bought by a different company or they’ll go public
and when that happens, they can sell their shares and earn a nice chunk of
change. This is called liquidity or becoming liquid, when you have the ability
to sell your shares. This process allows people to do things like buy a house,
pay off a loan, take care of a loved one, et cetera.

But here’s the thing about equity: While it can have a big and a real impact on
your life, it can also be super confusing. In this course, that’s why we’re
here. We’re here to teach you all of that stuff, top to bottom, everything you
need to know about how equity works. And to do that, we’re going to introduce
you to a character named Iris, and we’re going to follow Iris on her journey
with equity. Here’s Iris right here. Iris is an engineer who just got her first
job at an early stage-tech company. She’s the 37th employee and she files her
taxes as single.

Throughout Iris’ journey with equity, she’s going to encounter a few different
things. Along the way, she’s going to deal with cap tables, grants, vesting,
exercising, selling, taxes, and valuations. If all goes well, then one day Iris,
hopefully, might make some money and she may want to reinvest that money into
other startups and continue her wealth-building journey that way. As an
investor, there are a couple of other things that she’ll have to deal with, such
as becoming accredited. And if she wants to start her own thing, like an
investment vehicle or a fund and invest regularly in startups herself, she’ll
need to know the difference between direct investments or angel investments,
traditional funds, and SPVs.

When you’re ready, go and hit the button down below and we’ll start putting the
pieces together.


Expand full transcript
DIVE DEEPER


MORE RESOURCES

After you’ve learned the basics, follow up at your own pace with in-depth
explainers.

Explore the Equity 101 glossary


MORE QUESTIONS ANSWERED

What are employee stock options? How to value a job offer with a private company

Get in touch with us at equity101@carta.com for questions about our course and
partnership opportunities.

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described in this communication are provided to you “as is” and “as available”
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