What is equity?

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.