Reading the equity part of an offer

The headline number is not the real number

An equity grant gets quoted in whatever form makes it sound most impressive, and that form is rarely the one you need to compare it to anything else. "10,000 shares" means nothing without knowing what the company is worth and how many total shares exist. "$200,000 in equity" means nothing without knowing the vesting schedule and whether that value is based on a recent, credible price. Four things turn a headline equity number into something you can actually evaluate, and they're worth pulling apart before folding any of it into the rest of the negotiation: what you're being granted, how it vests, what it costs you to exercise, and how it's valued.

Shares versus percentage versus value

Get the actual number of shares or units, not just a dollar figure, and ask what percentage of the fully diluted share count that represents. A grant quoted only in dollars, calculated off a share price the company chose, tells you far less than the same grant expressed as a percentage of the company. Fully diluted matters specifically: it means the count includes all outstanding options and reserved shares, not just currently issued stock, which is the honest denominator. A recruiter who can answer "what percentage of the fully diluted cap table does this represent" without hesitation is giving you a real number. One who can only give you a dollar figure, restated a few different ways, may not have the fully diluted number handy, and it's worth asking for directly rather than letting the conversation stay in dollars.

Vesting schedule and the cliff

Standard vesting at most companies runs four years with a one year cliff: nothing vests before your first anniversary, then a chunk vests all at once, then the rest vests monthly or quarterly for the remaining three years. Confirm this is the schedule you're being offered, because it isn't universal. Some companies use different lengths or different cliff structures, and the difference changes what the grant is actually worth to you if you leave, or if the company doesn't work out, before year one. Ask directly: "What's the vesting schedule, and is there a cliff?" It's a normal question, and every equity-granting company has a ready answer.

Also ask about acceleration: does any portion of unvested equity accelerate if the company is acquired, and is it single trigger, accelerating on the acquisition alone, or double trigger, requiring both an acquisition and a job loss. Double trigger is more common and generally considered more standard. Single trigger for you personally would be unusual enough to be worth confirming rather than assuming.

Strike price and the 409A valuation

If the grant is stock options rather than RSUs, you have to pay a strike price to actually own the shares, and that price is set by the company's most recent 409A valuation, an independent appraisal of what the common stock is worth. Ask when the last 409A was done and what the resulting strike price is. A stale strike price, based on a valuation from well before a recent funding round, can undersell what you'd actually owe or overstate your paper gain, depending on direction. The gap between the current 409A value and the price investors just paid in a funding round, the preferred price, is a rough proxy for the cushion between what you'd pay to exercise and what the shares might be worth, though it's an imperfect one and not something to treat as a guarantee of anything.

RSUs are simpler, but not simple

Restricted stock units remove the strike price question. You don't pay to receive them, but they come with their own wrinkle: RSUs are typically taxed as ordinary income at vesting, based on the share value at that moment, whether or not you sell. At a private company, that can mean owing tax on shares you can't yet sell to cover the bill, which is a real cash flow problem worth understanding before you accept, not after your first vesting date arrives.

Four questions to ask before you compare anything

Ask these directly, in this order, either of the recruiter or in writing to HR: "Is this grant expressed as a number of shares or units, and what percentage of the fully diluted share count does that represent?" "What's the vesting schedule, and is there a cliff?" "When was the most recent 409A valuation, and what's the resulting strike price?" "Is there any acceleration if the company is acquired, and is it single or double trigger?" A well run equity program can answer all four without delay. Vague or evasive answers to more than one of them are themselves useful information about how the company handles equity generally.

When to call an accountant or a lawyer instead of a blog post

Nothing here is tax or legal advice, and equity specifically is where that boundary matters most. Whether to exercise options early, how alternative minimum tax might apply to an exercise, how a specific company's option agreement treats a termination, and how to actually value a private company's stock are all genuinely case by case, dependent on your tax situation, the company's specific paperwork, and numbers a blog post has no way to know. If the equity portion of an offer is a meaningful piece of your decision, not a token grant, a short paid conversation with a tax professional who handles equity compensation is worth it before you sign anything, and well worth it before you exercise anything.

Weigh the equity number alongside everything else in the offer, and if any of the answers above give you pause, that's a legitimate reason to slow down, not necessarily a reason to walk away from the whole offer, since equity is usually one part of a larger picture rather than the whole of it.

iapplyai.app can help you read an offer letter's terms in plain language against the rest of your package, though for anything involving your specific tax exposure, a professional who can see your full financial picture is the right next call, not an app.