A startup offer arrives with a salary you can evaluate and an equity figure you probably cannot. The equity number is usually presented as the exciting part, and it is the part most candidates accept without understanding.
Here is how to read it.
Number of shares means nothing on its own
“Ten thousand shares” is not information. What matters is the percentage, which means you need the total number of shares outstanding — on a fully diluted basis, including options not yet granted.
Ten thousand shares out of one million is one percent. Ten thousand out of a hundred million is one hundredth of a percent. Companies sometimes quote the raw number because it sounds larger.
Ask: “What percentage of the fully diluted shares does this represent?” A company unwilling to answer has told you something.
Vesting
Equity is earned over time. A common structure is four years with a one-year cliff: nothing vests until your first anniversary, then a quarter vests at once, then monthly thereafter.
Two consequences. Leaving at month eleven means you get nothing. And the stated figure is a four-year number, not a signing bonus — dividing it by four gives you the annual value, which is the figure to compare against a salary difference.
Dilution
Your percentage shrinks every time the company raises money. This is normal and not a trick, but it means the one percent you hold today is not one percent at exit. Across several funding rounds, early employee stakes are commonly reduced substantially.
Model it pessimistically. If the outcome only works assuming no further dilution, it does not work.
Preferences
The detail that surprises people most. Investors typically hold preferred shares that are paid back first in a sale. If investors put in fifty million with a one-times preference and the company sells for sixty, the first fifty goes to them and common shareholders — you — split ten.
This is why employees at companies that sold for headline-grabbing sums sometimes received very little. Ask: “What is the current preference stack?” If the answer is large relative to plausible exit values, the equity is closer to a lottery ticket than compensation.
The cost of exercising
Options are the right to buy, not a gift. You pay a strike price, and in many jurisdictions you may owe tax on the paper gain at the moment you exercise, before any liquidity exists. People have faced real tax bills on shares they could not sell.
Ask: “What is the strike price, how long do I have to exercise after leaving, and what are the tax implications here?” A 90-day post-departure exercise window is common and can force an expensive decision at a bad time.
Questions worth asking before you decide
- How much runway is there at the current burn rate?
- What was the valuation and date of the last round?
- How many people have left in the last year, and why?
- What does the company need to be true in eighteen months to raise again?
The answers matter less than the willingness to answer. Evasion on basic financial questions from a company asking you to accept below-market cash is a meaningful signal.
How to decide
Value the equity at zero and ask whether you would still take the job. If the salary, the work and the people justify it on their own, the equity is upside. If the offer only makes sense because of the equity, you are being paid in something with a low probability of paying out.
That framing is not cynicism. Startups can be an excellent place to spend early career years — the learning rate is genuinely higher and the responsibility arrives sooner. Just take the job for those reasons rather than for a number whose mechanics were never explained to you.