Receiving a startup job offer that includes equity can be exciting, but it represents a complex form of compensation. Many prospective employees wonder what their equity package means and how to evaluate its potential. This guide is designed to demystify the components of a startup equity offer, providing the clarity needed to understand its structure and assess its value.
Understanding Startup Equity Basics
Stock Options vs. RSUs
Most equity offers include either stock options or restricted stock units (RSUs). Stock options grant an employee the right to purchase a set number of company shares at a predetermined price. This type of equity is common in early-stage startups, as it provides a coupon to buy shares in the future at today’s price, which could be a significant discount if the company grows.
Conversely, RSUs represent a promise from the company to grant you shares at a future date with no purchase required. These are more frequently offered by later-stage companies where the stock already has a tangible market value. Upon meeting certain time-based conditions, the promised shares are delivered to the employee.
Vesting Schedules and Cliffs
Equity is earned over a period known as a vesting schedule. A common schedule is four years, meaning you would earn your full equity grant by staying with the company for that duration.
Most vesting schedules include a “cliff.” A one-year cliff is standard and acts as a probationary period for your equity. If you leave the company before your first anniversary, you walk away with no vested shares. After crossing the one-year mark, you receive the first 25% of your grant, with the remainder vesting incrementally, often monthly or quarterly, for the rest of the four-year period.
Strike Price
For stock options, the strike price is the fixed price per share you will pay to exercise your options, meaning to purchase the shares. This price is determined by a formal valuation of the company around the time your options are granted. A lower strike price is more advantageous, as it increases the potential profit margin when you eventually sell the shares.
Dilution
As a startup grows, it often raises capital by selling new shares to investors. This process, known as dilution, reduces the ownership percentage of all existing shareholders. While owning a smaller piece of the pie may sound negative, it is a natural part of a company’s growth. If new funding increases the company’s overall valuation, the smaller percentage you own could become more valuable than your original stake.
Key Factors Determining Your Equity Offer
The equity a startup offers is influenced by a specific set of variables. A primary factor is the company’s stage of development; an early-stage company involves higher risk for new hires, which is balanced by a larger equity grant. In contrast, a later-stage company that is more stable offers less risk, resulting in smaller equity percentages for new employees.
Your role and seniority level also directly correlate with the equity you can expect. A C-suite executive, such as a Chief Technology Officer, will receive a substantial equity stake because their strategic decisions impact the company’s trajectory. A Vice President or Director will also receive a significant grant, while an individual contributor’s offer will be smaller to reflect their scope of responsibility.
Equity Benchmarks by Role and Company Stage
Understanding typical equity ranges is a practical step in evaluating an offer. While figures vary, industry data from sources like AngelList and Carta, which analyze thousands of compensation packages, provides a helpful baseline.
Early-Stage (Seed or Series A)
For early-stage companies, equity grants are the most generous to attract foundational talent.
- C-level Executive: 1.5% to 5%
- Vice President (VP): 1% to 2%
- Director: 0.4% to 1.2%
- Lead Engineer / Manager: 0.2% to 0.7%
- Senior Individual Contributor: 0.1% to 0.4%
- Junior Employee: 0.05% to 0.2%
Mid-Stage (Series B)
As a company matures into its Series B round, it has likely achieved product-market fit and is focused on scaling. The associated risk for new hires decreases, and so does the equity offered.
- C-level Executive: 1% to 2.5%
- Vice President (VP): 0.7% to 1.5%
- Director: 0.3% to 0.8%
- Lead Engineer / Manager: 0.15% to 0.5%
- Senior Individual Contributor: 0.08% to 0.25%
- Junior Employee: 0.04% to 0.1%
Late-Stage (Series C and Beyond)
By Series C, a company is often a well-established player, possibly heading toward an IPO. The risk is significantly lower, and cash compensation is more competitive.
- C-level Executive: 0.5% to 1.5%
- Vice President (VP): 0.4% to 1%
- Director: 0.2% to 0.5%
- Lead Engineer / Manager: 0.1% to 0.3%
- Senior Individual Contributor: 0.05% to 0.15%
- Junior Employee: 0.02% to 0.07%
How to Calculate the Value of Your Offer
To understand the potential financial worth of your equity, you can perform a straightforward calculation. This requires knowing the number of options offered, the strike price per share, the company’s most recent valuation, and the total number of outstanding shares.
The formula to estimate the potential pre-tax value of your options is: (Number of Options × Price Per Share) – (Number of Options × Strike Price). The “Price Per Share” is found by dividing the company’s last valuation by the total number of outstanding shares. This gives you a snapshot of what your grant could be worth on paper at the company’s current valuation.
For example, imagine you are offered 20,000 stock options with a strike price of $2 per share. The company was last valued at $100 million and has 10 million total shares outstanding, making the current price per share $10. The potential value would be (20,000 × $10) – (20,000 × $2), which equals $160,000. This represents the hypothetical profit if you could exercise and sell your shares today.
Treat this figure as a speculative estimate. The value is theoretical until an “exit event,” such as an acquisition or an Initial Public Offering (IPO), allows you to sell your shares. The company’s valuation can fluctuate, and there is no guarantee of a future liquidity event.
Tips for Negotiating Your Equity
Use the benchmark data for your role and the company’s stage to anchor your request. If an offer is below the typical range, you can present this market data as evidence to support a request for a higher grant. This transforms the conversation into a well-reasoned discussion based on industry standards.
Frame your negotiation around the impact you expect to have on the company. Articulate how your specific skills and experience will contribute to business goals, such as revenue growth or product development. This strengthens your case for a larger ownership stake.
Remember the trade-off between salary and equity as a potential negotiation lever. If the company is unable to increase its equity offer, you might inquire about a higher base salary. Conversely, you can offer to accept a lower salary in exchange for a larger equity grant, which can be an attractive proposition for a cash-conscious startup.
Inquire about the company’s policies on future equity grants. Asking about “refresh grants,” which are additional equity awards based on performance, shows you are thinking about long-term commitment. Be realistic in your approach, as asking for an amount far outside the standard benchmarks is unlikely to be productive.