Employee equity

Startup equity is a claim on a future outcome you do not control, denominated in a currency (private shares) you usually cannot sell. Treated carefully, it can dwarf salary. Treated as a lottery ticket with no math, it becomes a story you tell yourself while the preference stack and dilution eat the payout.

This is the map for reading an offer: what instrument you are getting, what the strike means, how vesting works, what exercise costs, and how to turn "50,000 options" into ownership % and dollars. Tax detail lives in equity taxes.

Concepts in this section

Read them in order. Evaluation is last because it uses everything above it.

When you hire, you flip sides: explain a 0.15% grant honestly, including dilution and preferences, without overselling. Candidates remember who lied about equity more than who lowballed salary by $5k.

Recruiters may say "ISOs, which are better for you." Partially true. ISOs can yield better sale tax treatment if you meet holding periods, but they create AMT risk at exercise. For offer comparison, model after-tax proceeds under both "exercise early / hold" and "exercise at exit" — the tax layer is equity taxes. Until a tender, secondary or exit exists, treat the grant as illiquid deferred compensation, not a down payment.

Questions to ask before accepting

• What is total fully diluted share count today, and what % is my grant on that basis?
• Current 409A and strike? When is the next 409A expected?
• Last round price, post-money, and 1× non-participating or a seniority stack?
• Post-termination exercise window? Early exercise allowed?
• How many months of runway at current burn? Are refreshes real or aspirational?

You will not get a full data room as a candidate. You should get enough to avoid fantasy percentages.

Common mistakes

• Quoting outstanding-only % and ignoring the unissued pool.
• Ignoring preferences. Common can be zero at a "successful" sale.
• Assuming IPO at the last preferred mark.
• Missing a 90-day exercise window after a layoff.
• Comparing peak paper value to four years of liquid big-tech RSUs.

Key takeaways

• Options need cash (and sometimes tax) to become shares; RSUs deliver value at vest.
• Strike tracks 409A common FMV, usually below preferred; ask for both.
• Standard vest is 4 years with a 1-year cliff; PTE windows and acceleration are contract terms.
• Evaluate as shares / FD, diluted %, and payouts under multiple exits after preferences.

Further learning

Carta on options, strikes and vesting:

The Holloway Guide to Equity CompensationStock options, RSUs, job offers, and taxes—a detailed reference, including hundreds of resources, explained from the ground up, for both employees and managers.Holloway Index Ventures OptionPlanEntrepreneurs know how important stock options are for hiring and retaining the best talent.Index Ventures