Stock Option

A stock option is the contract granting the right to purchase common stock at a fixed strike price for a defined period. It is used as the primary equity-compensation mechanic at venture-backed startups, vesting over time (typically 4 years with a 1-year cliff) before becoming exercisable. It is the standard structure for employee equity in C-corp startups, distinct from outright stock grants because the employee must pay to convert the option into actual shares.

The mechanic of a stock option:

• Grant: the company issues the option with a defined number of shares, strike price (set by 409A valuation at grant date), vesting schedule, and expiration (typically 10 years).
• Vesting: the option vests over the vesting schedule (typica...