Fundraising
ISO (Incentive Stock Options)
Quick definition
Tax-advantaged employee stock option with potential long-term capital gains treatment if holding-period rules are met.
ISOs allow employees to defer income recognition until they sell the stock — and if held >2 years from grant and >1 year from exercise, profits are taxed at long-term capital gains rates. The catch: exercising ISOs may trigger AMT (alternative minimum tax) on the spread between exercise price and FMV. Limited to $100K worth of ISOs (by grant value) that can vest in any single year for any one employee; excess auto-converts to NSO. Common for early/mid-stage employees.
Related fundraising terms
SAFE (Simple Agreement for Future Equity)
Convertible instrument commonly used for early-stage rounds.
409A Valuation
Independent valuation of common stock used to set option strike prices.
Cap Table
A record of all ownership interests in your company.
Pro Rata Right
An investor's right to maintain their ownership % in future rounds.
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Insights and tools where ISO (Incentive Stock Options) shows up.
Frequently asked questions
- What is ISO (Incentive Stock Options)?
- ISOs allow employees to defer income recognition until they sell the stock — and if held >2 years from grant and >1 year from exercise, profits are taxed at long-term capital gains rates. The catch: exercising ISOs may trigger AMT (alternative minimum tax) on the spread between exercise price and FMV. Limited to $100K worth of ISOs (by grant value) that can vest in any single year for any one employee; excess auto-converts to NSO. Common for early/mid-stage employees.
- Why is ISO (Incentive Stock Options) important for startups?
- ISO (Incentive Stock Options) is a fundraising concept that matters for startup founders because it directly affects fundraising readiness, financial decision-making, or operational discipline at the stage where mistakes are expensive to undo. Founders who understand it have a meaningfully easier time in diligence, board meetings, and investor conversations.
- What category does ISO (Incentive Stock Options) belong to?
- ISO (Incentive Stock Options) is a Fundraising term in the StartupCFO finance glossary — alongside other fundraising concepts that founders, CFOs, and accountants use in daily startup operations and reporting.
- Where can I learn more about ISO (Incentive Stock Options)?
- Beyond this definition, see the related fundraising terms below, or explore StartupCFO's insights and tools that put ISO (Incentive Stock Options) in context. For specific situations, talk to a fractional CFO who can walk through your numbers.
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