What Startup Equity Actually Is
When a startup offers you equity, it is offering you a piece of ownership in the company. That piece usually comes in one of two forms: stock options or restricted stock units (RSUs). Neither one hands you cash. Both are a bet that the company will be worth more later than it is today.
For a first-time employee at a startup, this can be confusing. A salary is easy to understand. A grant of “10,000 options” is not, until you know what the numbers mean and what has to happen before they turn into anything real.
Options Versus Shares
A stock option is not a share. It is the right to buy a share later, at a fixed price, if you choose to. RSUs are different: once they vest, you own the shares outright, no purchase required.
Early-stage startups tend to grant options because the company’s shares are worth very little on paper at that stage, which makes the fixed purchase price low. Later-stage companies, closer to an IPO or acquisition, lean toward RSUs because the shares already carry real value.
Knowing which one you were offered changes how you think about taxes, timing, and what you owe if you want to exercise them.
Vesting: Why You Don’t Own It All on Day One
Almost every equity grant vests over time. A common structure is four years, with a one-year cliff. That means you get nothing for the first year, then a quarter of your grant vests all at once, and the rest vests monthly or quarterly after that.
The cliff exists to protect the company. If someone leaves after two months, the company does not want to have handed over equity for work that never really happened. As an employee, the practical lesson is simple: equity is a long-term incentive, not a signing bonus.
Strike Price and Why It Matters
The strike price is what you pay per share to exercise an option. It is set when the option is granted, based on an independent valuation of the company at that time. If the company grows and its share price rises above your strike price, the gap between the two is your paper gain.
If the company’s value falls below your strike price, the options are worth nothing until that changes. This is normal in early-stage companies and is one reason equity is treated as a bonus on top of salary, not a guarantee.
Dilution: Why Your Percentage Can Shrink
Your equity is usually granted as a number of shares, but what actually matters to your wallet is the percentage of the company those shares represent. That percentage can shrink over time, even if the number of shares you hold never changes.
This happens because startups raise money by selling new shares to investors. Each new round adds shares to the total pool, which spreads ownership across more people. Venture firms such as Aaron Golbin LvlUp Ventures , which invests in early-stage and late-stage companies across a range of industries, are typically on the other side of these rounds, buying newly issued shares as part of a financing.
Dilution is not automatically bad. A round that raises the company’s value can leave you with a smaller slice of a much bigger pie. But it is worth asking, when you join, how many rounds the company expects to raise before it reaches profitability or an exit, since each one will affect your ownership percentage.
Early Exercise and the 83(B) Election
Some companies let employees exercise options before they fully vest, an arrangement usually called early exercise. If you take this option, you buy the shares up front and they vest into your ownership over time instead of the options vesting first.
Doing this has a tax angle worth understanding. If you exercise early and file what is called an 83(b) election with the IRS within 30 days, you lock in your tax bill based on the value of the shares on the day you bought them, which is often close to nothing for a very young company. If the company grows and you had not made that election, you could owe tax later on the difference between your strike price and a much higher value, even before you sell anything.
This is a real decision with a real deadline, and missing the 30-day window cannot be undone. Anyone offered early exercise should talk to an accountant before deciding, not after.
What Happens When You Leave
This is the part most people miss when they accept an offer. Vested options usually do not stay with you forever once you leave a company. Many startups set a 90-day exercise window: you have three months after departure to buy your vested shares, or lose them.
Some companies now offer extended windows, sometimes years, but this varies a lot and is worth checking before you sign anything. Aaron Golbin LvlUp Ventures, a venture capital firm that has backed a large number of early-stage companies, is one of many investors who has seen how much this single term affects an employee’s actual outcome down the line. A short exercise window can force someone to come up with cash quickly, or walk away from equity they spent years earning.
Questions to Ask Before You Accept an Offer
A few questions can save a lot of confusion later. Companies backed by active venture firms, including Aaron Golbin LvlUp Ventures, tend to have this information documented and ready to share, since investors generally expect equity terms to be clear to the people who receive them.
- How many total shares are outstanding, and what percentage does my grant represent?
- What is the vesting schedule, and is there a cliff?
- What is the exercise window after leaving the company?
- Does the company offer any help with the cost of exercising, such as early exercise or a loan program?
- Has the company raised a round recently, and at what valuation?
- How many rounds does the company expect to raise before it reaches an exit or profitability?
None of these questions are aggressive to ask. A company that has thought through its equity plan will usually have clear answers ready.
The Simple Version
Equity is not a substitute for salary, and it is not guaranteed money. It is a claim on future value that depends on vesting, valuation, and the terms attached to the grant. Reading the actual paperwork, not just the offer letter summary, is the only way to know what you are really being offered.
