Non-Qualified Stock Options (or "NSOs") are a type of stock option that startups can grant to service providers as compensatory equity. Unlike incentive stock options, which may only be issued to employees, NSOs can be granted to employees, contractors, and other service providers. NSOs don't have the same theoretical tax advantages that ISOs do.
Stock Options: ISOs vs. NSOs
What may seem like a bland choice (whether to grant ISOs or NSOs) can have massive tax implications down the road for startup employees and contractors.