Cap tables and equity
Options vs RSUs vs restricted stock
Three ways companies grant equity — a right to buy, a promise of shares at vest, or actual shares upfront.
Startup equity is a claim on a future outcome you do not control, denominated in a currency (private shares) you usually cannot sell. Before you model an offer, you need to know what instrument you are getting. The same "50,000 units" means three different things depending on whether they are options, RSUs or restricted stock.
The big idea
| Instrument | What you get | Typical stage | When you own shares |
|---|---|---|---|
| Stock option | Right to buy common at a fixed strike | Seed → growth | When you exercise (and pay) |
| RSU (restricted stock unit) | Promise of shares (or cash) at vest | Late private / public | At vest (often with liquidity conditions at late private companies) |
| Restricted stock | Actual shares upfront, subject to vesting/repurchase | Very early (sometimes founders/early hires) | Immediately (subject to repurchase); often with an 83(b) |
Concept
An option is a contract: you may purchase up to N shares at strike price K until the expiration date (often 10 years from grant while you stay employed). It is worthless on paper until fair market value S exceeds K (in the money). Even then, private-company options are hard to turn into cash without a tender, secondary or exit.
Options split into ISOs (incentive stock options) and NSOs (non-qualified): same economic "buy at strike" idea, different tax rules. Early employees usually get options. Public-company and very late-stage private offers skew to RSUs because options with a high strike are awkward when fair market value is already high.
You generally cannot file an 83(b) on an RSU — there is no property transferred until vest. That is a feature of the instrument, not a paperwork oversight.
Walking through one grant
A seed company grants 40,000 options at a $1.20 strike. You own nothing until you pay 40,000 × $1.20 = $48,000 and receive shares.
A public company grants 40,000 RSUs. As they vest, you receive shares (or cash) with no strike to pay. Tax is withheld, often by selling some of the shares.
A day-one hire at a brand-new C-corp might get restricted stock for a few dollars, file an 83(b), and vest through repurchase — founder-like mechanics on a smaller block.
Common mistakes
- Comparing option count to RSU count. One needs cash to become stock; the other delivers value at vest.
- Assuming private RSUs are liquid at vest. Late-private plans often add a liquidity condition.
- Treating recruiter "ISOs, which are better" as the whole story. Tax treatment differs; the economic instrument is still "buy at strike." See equity taxes.
Check yourself
You have 10,000 options at a $2 strike and 10,000 RSUs. The company is acquired at $2 per common share. What is each worth before tax?
Options: about zero — they are at-the-money, and you still have to pay $2 to buy. RSUs: about $20,000 of stock (or cash), with withholding.
Why do late-stage companies switch from options to RSUs?
When 409A common is already high, a new option has a high strike and little spread. RSUs deliver the share without a strike.
Key takeaways
- Options are a right to buy at a strike; you own shares only after you exercise and pay.
- RSUs deliver shares (or cash) at vest, often with withholding and sometimes a liquidity condition.
- Restricted stock is actual shares now, usually with repurchase and an 83(b).
- ISO vs NSO changes tax, not the basic "buy at strike" economics.
Further learning
Next, how that strike is set: strike price and 409A.