What's the difference between NSOs and ISOs?

Founders generally grant two kinds of equity from their Equity Incentive Plan: Incentive Stock Options (ISOs) and Non-qualified Stock Options (NSOs). The two differ in several ways, but the upshot is that ISOs (which are only available to employees) do not create “income” at exercise in the eyes of the IRS, meaning that they do not result in additional taxes for the employee until the employee sells the shares, and startup employees would therefore generally prefer to receive ISOs rather than NSOs. The company can issue either type of equity grant from the same option pool, as long as the Equity Incentive Plan authorizes both (which Gust Launch EIPs do).