Fundraising
Stock-Based Compensation (SBC)
Quick definition
Non-cash compensation expense recorded on the P&L for stock options, RSUs, and other equity grants, per ASC 718.
ASC 718 requires companies to recognize the fair value of equity awards as compensation expense over the vesting period. Computed using Black-Scholes or similar models. Non-cash — reduces net income but not cash. Often material at growth-stage startups (20%+ of revenue). Investors often back it out when computing 'true' burn or EBITDA. Required disclosure starting from your first audit.
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.
Frequently asked questions
- What is Stock-Based Compensation (SBC)?
- ASC 718 requires companies to recognize the fair value of equity awards as compensation expense over the vesting period. Computed using Black-Scholes or similar models. Non-cash — reduces net income but not cash. Often material at growth-stage startups (20%+ of revenue). Investors often back it out when computing 'true' burn or EBITDA. Required disclosure starting from your first audit.
- Why is Stock-Based Compensation (SBC) important for startups?
- Stock-Based Compensation (SBC) 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 Stock-Based Compensation (SBC) belong to?
- Stock-Based Compensation (SBC) 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 Stock-Based Compensation (SBC)?
- Beyond this definition, see the related fundraising terms below, or explore StartupCFO's insights and tools that put Stock-Based Compensation (SBC) in context. For specific situations, talk to a fractional CFO who can walk through your numbers.
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