Glossary of Terms on The Grid

An ISO gives an employee the right to buy shares of company stock at a discounted price. Generally, ISOs are awarded only to top management and highly-valued employees. ISOs are also called statutory or qualified stock options.

FMV is the price a business would sell for on the open market with the following assumptions: Buyer and seller (1) are reasonably knowledgeable about the business (2) are behaving in their own best interests (3) free of undue pressure (4) given a reasonable period for completion

Purchase price allocation is the process of dividing the total purchase price of a business among its individual assets for tax purposes.

A DPO, also known as a direct listing, allows companies to raise capital by selling securities directly to the public without involving traditional intermediaries like investment banks. This method appeals particularly to small companies and those with established customer bases

Ownership moves to family members by sale or gift as part of succession planning.

Existing managers buy the company. Ownership stays with a small leadership group.

The Worker Ownership, Readiness, and Knowledge (WORK) Act, part of the SECURE 2.0 Act of 2022, aims to promote and support worker-owned businesses in the U.S.

The interest coverage ratio (ICR) assesses a company's capacity to manage its debt obligations, crucial for evaluating its financial stability. It's calculated by dividing EBIT (earnings before interest and taxes) by total interest expense.

An earnout is a form of deferred payment to the seller that is contingent on certain events occurring post-closing. An earnout can be tied to revenue, EBITDA, or a non-financial metric such as retention of key employees or the issuance of a patent.

The Ownership Impact Index(R) is a targeted workforce diagnostic that does more than just assess ownership culture or mindsets - it zeroes in on actions leaders can take to transform the operational and managerial practices to ignite them.

Section 1042 lets an owner of a closely held C corporation defer, and potentially avoid, capital gains tax on stock sold to an ESOP or an eligible worker-owned cooperative, if the buyer then owns 30% or more and the proceeds are reinvested in qualified replacement property (QRP).

CDFIs are federally insured and regulated depository institutions that provide credit and financial services to people and communities underserved by mainstream commercial banks and lenders.

Rollover Equity refers to the exit proceeds reinvested by a seller into the equity of the newly formed entity post-acquisition. An equity rollover is therefore designed to align the economic incentives among participants in the post-transaction entity.

A mini IPO, also known as Regulation A+, is a streamlined version of a traditional IPO designed for early-stage companies. This process allows companies to raise capital by offering publicly traded shares with fewer regulatory requirements compared to standard IPOs.

When preparing to meet with a banker for a loan, it's crucial to anticipate and answer questions that demonstrate your business's creditworthiness using the Five C’s of Credit: Character, Capital, Capacity, Collateral, and Conditions.

A financial buyer is primarily interested in the return that can be achieved from the purchase of a business, and interested in what cash flow the investment will generate and what kind of exit strategies the investment will offer in the future

The NMTC Program incentivizes community development and economic growth through the use of tax credits that attract private investment to distressed communities.

CAFE is a novel financial instrument aimed at enhancing community engagement in company success introduced by Fairmint. Developed in collaboration with legal experts, CAFE offers enhanced control for founders, equity access for stakeholders, and liquidity for investors.

A traditional search fund is an investment vehicle one or two people raise from investors to search for, buy, and lead a private company. A self-funded search, paid for by the searcher, is a separate model.

The DCIF offers a compliant strategy to avoid classification as an "investment company" under the Investment Company Act of 1940, which allows flexibility in raising community capital, primarily focusing on real estate investments (at least 60% of its assets are non-securities).

An Employee Ownership Trust (EOT) is a legal structure where a trust holds company shares for employees' benefit. It gives them a stake in the company, potentially sharing profits and fostering a sense of ownership.

Myths about EO companies which may be held by the general public, opinion leaders, influencers, SMB owners, advisors, etc.

A Simple Agreement for Future Equity (SAFE) offer future equity rights without immediate valuation, making them popular for early-stage startup funding. These were introduced by Y-Combinator in 2013 and these convert into equity during funding rounds or acquisitions.

A SHARE is a financial instrument designed for startups seeking capital without traditional equity or debt structures. Issued by a company to an investor in exchange for a specified purchase amount, combining elements of revenue-sharing and equity ownership.

The Economic Injury Disaster Loan (EIDL) program offered by the Small Business Administration (SBA) provides crucial financial assistance to small businesses, agricultural cooperatives, and nonprofit organizations impacted by declared disasters.

Enterprise value (EV) represents a company's total worth, going beyond market capitalization to include debt, cash, and equivalents. It's essential for mergers, acquisitions, and investment analysis, offering a holistic view of a company's value.

A good business plan guides you through each stage of starting and managing your business. You’ll use your business plan as a roadmap for how to structure, run, and grow your new business. It’s a way to think through the key elements of your business.

Debt-to-Income (DTI) ratio is a crucial financial metric used by lenders to assess borrowers' ability to manage debt. It measures the percentage of a person’s gross monthly income that goes towards debt payments.

Key Performance Indicators (KPIs) are essential metrics used to evaluate a company's overall performance in strategic, financial, and operational terms. They quantify success against targets or industry benchmarks, guiding strategic decisions.

The balance sheet is a crucial financial statement that provides a snapshot of a company's assets, liabilities, and shareholder equity at a specific point in time. It serves as a fundamental tool for investors and analysts to assess a company's financial health