By Harry Prabandham · Updated September 27, 2026
Equity Compensation
How to Evaluate the Equity in a Startup Job Offer
Evaluating startup equity means converting the grant into ownership, knowing the option type and tax rules, and testing value at several exit prices.
How to Evaluate the Equity in a Startup Job Offer
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How do you evaluate the equity in a startup offer?
- A startup offer is cash pay plus equity whose value depends on a future sale or IPO that may never happen.
- Evaluating it means converting the grant into a percentage of the company, knowing how it will be taxed, and testing it at several exit values.
- Judging the cash pay on its own and treating equity as uncertain upside is a common way to keep expectations grounded.
- Most startups don't produce a large exit, so a realistic range of outcomes includes zero.
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How do you evaluate the equity in a startup offer?
- A startup offer is cash pay plus equity whose value depends on a future sale or IPO that may never happen.
- Evaluating it means converting the grant into a percentage of the company, knowing how it will be taxed, and testing it at several exit values.
- Judging the cash pay on its own and treating equity as uncertain upside is a common way to keep expectations grounded.
- Most startups don't produce a large exit, so a realistic range of outcomes includes zero.
Information to request from the company
- Number of options or shares and the fully diluted share count, so you can calculate your ownership percentage.
- Strike price, latest 409A valuation, and the price investors paid in the most recent preferred round.
- Vesting schedule and cliff, post-termination exercise window, whether early exercise is allowed, and any acceleration on acquisition.
- Total liquidation preferences outstanding, recent funding history, and how much runway the company has.
How do ISOs, NSOs, and RSUs differ?
- ISOs go only to employees, create no regular tax at exercise, may trigger AMT, and qualify for capital gains if held two years from grant and one from exercise.
- Only $100,000 of ISOs, by grant-date value, can first become exercisable per year; the excess is treated as NSOs.
- NSOs create ordinary income on the spread at exercise, even in private companies, with payroll withholding for employees.
- RSUs at private companies are often double-trigger, meaning they are taxed as wages only when both vesting and a liquidity event occur.
How do preferences and dilution affect what common shares are worth?
- Investors' preferred stock is usually repaid first, so in a modest sale, common shareholders may receive little or nothing.
- Future funding rounds dilute your percentage, although they can also raise the company's value.
- The paper spread between share value and strike price is not what you keep; you still pay the strike price and taxes.
- Comparing results at a few exit values, including one below total preferences, gives a truer picture than the last round's price.
Leaving the company: effects on your options
- Unvested options are usually forfeited when you leave, though some plans accelerate vesting on an acquisition.
- Vested options must be exercised within the plan's post-termination window, commonly 90 days, though some companies allow several years.
- ISOs exercised more than three months after employment ends (one year for disability) are taxed as NSOs.
- By statute ISOs can't last more than ten years from grant (five for 10% owners); NSO terms are set by the plan, usually ten years.
When can early exercise make sense?
- Some plans let you exercise before vesting and file an 83(b) election within 30 days, which starts holding periods early.
- When the spread is near zero, early exercise can mean little or no tax now and potentially more gain taxed at capital gains rates later.
- The risk is paying cash for shares that may become worthless, and a missed 30-day deadline can't be fixed.
- Early-exercised shares in a qualifying C corporation may also start the qualified small business stock holding period.
Key takeaways
- Ask for enough data to calculate your ownership percentage and understand preferences ahead of common stock.
- Option type determines when and how you're taxed, and leaving the company changes those rules.
- Paper value is not after-tax value; strike cost, taxes, dilution, and preferences all reduce it.
- This is educational only; confirm tax treatment with a CPA and plan terms with the company before deciding.
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