Deal Terms
Phantom Equity
A cash bonus plan that mimics the economics of equity ownership without actually granting shares or options.
Phantom equity (or phantom stock) gives employees the economic equivalent of equity — they receive cash payments that track the company's equity value — without diluting actual ownership. Common in non-VC-backed companies, LLCs, and as supplements to traditional equity grants.
In Practice
The consulting firm granted phantom equity worth 2% of the company. When the firm was acquired for $50M, the holder received $1M in cash — the same economics as if they'd held real shares.
Why It Matters
Phantom equity solves several problems: avoids cap table complexity, works in entity structures that can't easily issue equity, and provides equity-like incentives without actual dilution.
VC Beast Take
Phantom equity is real equity's stunt double. Same upside, different paperwork. It's especially useful when actual equity would create more problems than it solves.
Related Concepts
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