The part of the offer most engineers try not to read is often the part that explains the real offer.
An offer might include 50,000 options. That number sounds concrete and tells you almost nothing by itself.
You need the fully diluted share count, strike price, vesting terms, exercise window, current valuation context, and the economic rights attached to other shares before you can understand what was offered.
This is a candidate's reading framework, not tax, legal, or investment advice. Equity treatment depends heavily on the plan, company, and jurisdiction. Ask a qualified adviser before making a material exercise or tax decision.
Start with percentage ownership.
Ask:
- How many shares or options are in my grant?
- What is the fully diluted share count?
- What percentage would the grant represent today?
- Is the percentage calculated before or after the current financing?
The basic estimate is:
grant shares / fully diluted shares = current ownership percentage
"Fully diluted" should account for issued shares, the employee option pool, outstanding options and warrants, and other securities that can become shares. Ask the company to define what it included.
Understand what you are receiving.
Common instruments include stock options, restricted stock, and restricted stock units. They differ in ownership, exercise, settlement, and taxation.
For US plans, the IRS distinguishes statutory options, including incentive stock options, from nonstatutory options. RSUs generally represent a right to receive stock or cash after vesting conditions are met. Other jurisdictions use different categories and tax rules.
The label is not enough. Read the plan and grant agreement.
Read vesting as a retention design.
A common schedule is four years with a one-year cliff, followed by monthly or quarterly vesting. Confirm:
- vesting start date;
- cliff;
- vesting frequency;
- treatment during leave;
- what happens at termination;
- whether acceleration exists after an acquisition;
- whether refresh grants are part of normal compensation review.
Ask about both single-trigger and double-trigger acceleration. Do not assume either is included.
Price the option, not only the upside.
An option is the right to buy a share at the strike price. Exercising can require meaningful cash:
vested options × strike price = exercise cost
Tax may also arise at exercise, vesting, sale, or another event depending on the instrument and jurisdiction. The IRS notes, for example, that ISO exercise can have alternative minimum tax consequences.
Questions to ask:
- What is the current strike price?
- When was the latest common-share valuation?
- What is the post-termination exercise window?
- Is early exercise allowed?
- Can exercise be cashless in a liquidity event?
- Does the company support tender offers or secondary sales?
A 90-day exercise window after leaving can turn vested options into a rushed cash decision.
Model dilution honestly.
Future fundraising, option-pool increases, conversions, and acquisitions can reduce your percentage.
Dilution is not automatically bad. Owning a smaller percentage of a much more valuable company can be a good outcome. The mistake is treating today's percentage as permanent.
Model a few scenarios:
| Scenario | Company value | Your diluted ownership | Gross paper value |
|---|---|---|---|
| downside | lower or zero | reduced | possibly zero |
| base | plausible next stage | reduced | value before tax and exercise |
| upside | strong outcome | further reduced | still not cash until liquidity |
Subtract exercise cost and consider tax. Do not assign a public-market liquidity discount to a private security that cannot be sold.
Ask about preference and liquidation structure.
Preferred investors may receive their investment back before common shareholders participate, depending on the terms. Participation rights, senior preferences, debt, and acquisition structure can change common-share proceeds.
A company may not share the full cap table with a candidate. It should still be able to explain:
- the latest preferred financing price and date;
- the common-share valuation used for options;
- total funding;
- whether preferences are broadly standard or unusual;
- whether there is meaningful debt;
- the current option-pool size.
Separate value from certainty.
I treat startup equity as a high-variance component, not deferred cash.
The role, team, learning, scope, base compensation, company runway, and personal risk tolerance still matter. A precise spreadsheet does not make the outcome predictable; it makes assumptions visible.
My candidate checklist.
Before accepting, I want:
- instrument and grant size;
- fully diluted ownership percentage;
- strike price and valuation date;
- vesting and acceleration terms;
- exercise window;
- option-pool and dilution context;
- latest financing and runway context;
- liquidity history or policy;
- copies of the plan and grant documents;
- jurisdiction-specific professional advice where needed.
The point is not to interrogate a founder over every hypothetical.
It is to evaluate the same offer the company believes it is making.