Equity Compensation Review: Options, RSUs, and Grants Explained
Startup job offer includes "100,000 options." Sounds great. But is it worth anything? What's the strike price? Vesting schedule? If company never sells, are your options worthless? This guide explains equity so you understand what you're actually getting.
Types of Equity: Options vs. RSUs vs. Grants
STOCK OPTIONS (ISOs & NSOs): You have right to buy company stock at fixed price (strike price). Example: "100,000 options at $0.50 strike price." This means you can buy 100k shares for $50k total ($0.50 × 100k). ISOs = tax-advantaged (if company is acquired). NSOs = regular tax treatment. RSUs (RESTRICTED STOCK UNITS): You're granted actual shares, but they vest over time. Example: "50,000 RSUs vesting over 4 years." At each vesting event, you own the shares (no purchase needed). When company goes public, RSUs become cash. GRANTS (Restricted Stock): Similar to RSUs but you own the shares immediately (vesting affects your voting rights, not ownership).
Understanding Vesting, Cliffs, and Acceleration
VESTING: You earn equity gradually over time. 4-year vesting is standard: 25% per year or 0.5833% per month. CLIFF: Before cliff date, you own 0% of equity. At cliff, a chunk vests immediately (usually 25%). Then equity vests gradually. Example: "4-year vesting, 1-year cliff" = 0% at month 11, 25% at year 1, then 0.5833% per month. If you leave before year 1: lose 100%. If you leave after year 1: you earned 25% (not all lost). ACCELERATION: Vesting speeds up. Single-trigger = happens automatically (usually on acquisition or IPO). Double-trigger = requires two events (company acquired AND you're fired or leave).
Is Equity Actually Valuable?
COMPANY STAGE MATTERS: (1) Early-stage startup (Series A): options might be worth $0 (company might fail) or millions (if successful). High risk. (2) Growth-stage startup (Series C+): more likely to exit, options more valuable. (3) Pre-IPO: equity very likely to become valuable. (4) Public company: equity converted to cash (RSUs) or stock, definitely valuable. QUESTIONS TO ASK: (1) What's company valuation? (2) Has company raised funding? How much? (3) Is company profitable? (4) What's expected exit (IPO, acquisition, other)? (5) How many total shares outstanding? (dilution matters). CALCULATION: Use Levels.fyi or startup equity calculators to estimate value based on company stage and funding.
Frequently Asked Questions
What's the difference between options and RSUs?
OPTIONS: You buy shares at strike price. If company succeeds, you profit (sell at higher price). If company fails, you lose the strike price. RSUs: You own shares immediately as they vest. If company succeeds, you profit. If company fails, shares are worthless.
What if the company never goes public or gets acquired?
Your equity might be worthless. This is the startup risk. Before accepting startup offer, ask: "What's the expected timeline to exit?" If company can't sell, equity never becomes cash.
Can I negotiate equity grant after I've signed?
Very hard. Negotiate equity (amount, vesting schedule, cliff) BEFORE signing. After signing, equity grant is usually locked in.
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