How to evaluate equity offers

Most candidates evaluate equity offers like this: they look at the percentage, compare it to a blog post they read, and decide if it “sounds good.” This approach misses the mechanics that determine whether your equity is worth anything at all. This guide walks through how to understand what you’re actually getting, calculate realistic value, assess the equity structure, compare to market, and negotiate without burning the offer.

Understand What You’re Actually Getting

First, the basics. Most startup employees receive stock options, not shares directly. Options give you the right to buy shares at a fixed price — the strike price — set by the 409A valuation on your grant date. ISOs (incentive stock options) are more tax-efficient than NSOs but have stricter rules. The key question is not “how many shares?” but “what percentage of the fully diluted company do I own?”

Here’s the math: (shares granted / fully diluted shares outstanding) × 100 = your ownership percentage. If you’re granted 10,000 shares and the company has 10 million fully diluted shares, you own 0.1%. The number of shares is meaningless without the denominator. A grant of 100,000 shares sounds generous until you learn there are 500 million fully diluted shares.

Vesting means you earn your equity over time. The standard is 4 years with a 1-year cliff: nothing for 12 months, then 25% vests instantly, and the remaining 75% vests monthly over the next 3 years. If you leave before the cliff, you get nothing. After the cliff, you keep what has vested. This is why the cliff matters so much — it’s the point at which your equity becomes real.

Calculate the Realistic Value

Let’s run the numbers on a realistic scenario. You’re joining a seed-stage startup at an $8M valuation with 1% equity. The liquidation preference is 1x non-participating (standard and fair).

Modest exit ($40M acquisition):

• Your gross value: $40M × 1% = $400,000
• After liquidation preference: investors get their $3M back first (assuming they invested $3M), leaving $37M for everyone else
• Your share: $37M × 1% = $370,000
• After taxes (long-term capital gains at ~20% + state): ~$296,000
• Not life-changing, but meaningful

Strong exit ($150M acquisition):

• Your gross value: $150M × 1% = $1.5M
• After liquidation preference: $147M remains
• Your share: $147M × 1% = $1.47M
• After taxes: ~$1.18M
• Life-changing for most people

But here’s the honest part: most startups don’t exit at $40M or $150M. The median startup exit is under $30M, and many exit below the total liquidation preference stack, meaning common stockholders get $0. The expected value of startup equity is lower than the headline numbers suggest. The upside is real, but it’s not the median outcome.

Dilution reduces your percentage over time. If you own 1% at seed and the company raises three more rounds, your ownership might dilute to 0.4-0.6%. The absolute value can still increase if the company’s valuation grows faster than the dilution, but your percentage always goes down. Plan for 2-3x dilution between seed and exit.

Assess the Equity Structure

Not all equity is created equal. The structure matters as much as the percentage.

Red flags:

• Missing double-trigger acceleration. If the company is acquired and you’re terminated, unvested shares should accelerate. Without this, you could lose everything in an acquisition.
• Liquidation preference above 1x. A 2x or 3x preference means investors get 2x or 3x their investment before common stockholders see a dime. At a $40M exit with $6M invested, a 2x preference wipes out $12M first — leaving much less for employees.
• Participating preferred. Investors get their preference back AND participate in the remaining proceeds as if they held common stock. This is doubly bad for employees.
• Short exercise window post-departure. The standard was 30-90 days, which forces you to exercise (pay cash) or lose your options. A 5-10 year window is founder-friendly and increasingly common. If your window is 90 days, ask why.

Green flags:

• 1x non-participating liquidation preference
• Double-trigger acceleration clause
• Extended exercise window (1+ years)
• Transparent cap table and 409A process
• Regular option pool refreshes

Compare the Offer to Market

Before you negotiate, you need data. Start with FoundingHunt’s salary guides, then cross-reference with Levels.fyi and Carta compensation reports. What matters is: same role, same stage, same location.

A seed-stage founding engineer in San Francisco should expect 0.5-2% equity and $90K-$140K base. The same role at Series A might be 0.25-0.75% and $130K-$180K base. If you’re offered 0.15% at seed, you’re below market. If you’re offered 2.5% at seed, either the company is very early or the equity is less valuable than it appears (high liquidation preference, small option pool, etc.).

What to do if you’re below market: counter with data, not emotion. “Based on market data for a seed-stage founding PM in SF, the equity range is 0.8-1.5%. I’m excited about the role and would be thrilled to join at 1%.” Most startups have 20-50% flexibility on equity. More than 2x is unlikely to work unless you’re bringing something extraordinary.

Negotiate Without Burning the Offer

Timing matters. Negotiate after they’ve verbally indicated they want to make an offer, before the formal offer letter arrives. Once the letter is written, changes become harder because legal and finance have already approved the terms.

Script for equity counter:

“I’m very excited about this role and the team. Based on my research for seed-stage founding engineers in this market, the equity range is typically 0.8-1.5%. Given my experience and the scope of this role, I was hoping we could land at 1.2%. Is there flexibility on the equity package?”

Script for cash counter:

“I’m excited to join. My current base is $150K, and I’d need to be at $140K to make the move work financially. Is there room on the base salary?”

What not to do: Give ultimatums (“I need X or I’m walking”), negotiate multiple times after they’ve moved, or bring up comp in every conversation. The one thing most candidates forget: ask about refresh grants. “How does the company handle equity refresh grants for high performers?” This signals you’re thinking long-term.

Key Takeaways

• The percentage means nothing without the denominator — always ask for fully diluted shares outstanding.
• Most startup equity pays out modestly or not at all; the upside is real but not the median outcome.
• 1x non-participating liquidation preference and double-trigger acceleration are the minimum acceptable structure.
• A 90-day exercise window post-departure can cost you your equity if you ever leave — ask for longer.
• Counter with market data, not emotion, and always ask about refresh grants.

FAQ

Should I hire a lawyer to review the offer?

For most standard offers, a lawyer is unnecessary if you understand the basics. If the equity structure is non-standard (participating preferred, 2x+ liquidation preference, unusual vesting terms), then yes — spend $500-1,500 on a startup employment lawyer. The cost is trivial compared to the potential downside of a bad structure. For standard 4-year vest, 1-year cliff, 1x non-participating preference offers, save the money and do your own research.

What’s an exercise window and why does it matter?

The exercise window is how long you have to buy your vested options after you leave the company. A 90-day window means you must come up with the cash to exercise within 3 months of departure, or you forfeit the options. At a company with a $2 strike price and 50,000 vested shares, that’s $100,000 in cash plus tax liability. A 5-10 year window gives you time to wait for a liquidity event. Always ask for the window length before accepting.

Can I negotiate equity after accepting?

Technically yes, but practically it’s very difficult. Once you’ve accepted, the company has no incentive to improve the offer. The only leverage you have is a credible threat to leave, which is a nuclear option. If you discover the equity is worse than you understood (e.g., participating preferred you didn’t catch), you can try to renegotiate, but expect resistance. This is why you do the analysis before accepting, not after.