Most candidates nod along when equity comes up in an offer. Then spend years confused about what they actually own — and whether it’s worth anything.
I have this conversation with almost every candidate I place at a startup. And the pattern is always the same: someone smart, experienced, and otherwise prepared gets to the equity section of their offer and goes quiet. They nod. They don’t want to ask questions that make them look like they don’t know what they’re doing.
So they sign. And then six months later they’re asking me what “fully vested” actually means.
Let’s just do this now, before you sign anything.
What You’re Getting Isn’t Stock. It’s Options.
At most early-stage startups, you won’t receive shares outright. You’ll receive stock options — the right to purchase shares later at a fixed price called the strike price (or exercise price).
When you join, the company’s board approves a 409A valuation, which is essentially a formal appraisal of what one share is worth today. That number becomes your strike price. Say it’s $1.00 per share.
If the company eventually gets acquired or goes public at $20 per share, your profit is $19 per share — you had the right to buy at $1.00, and the shares are now worth $20. That’s the upside scenario.
But options are not shares. They don’t pay dividends. You can’t sell them. You can’t do anything with them until you exercise — meaning you write a check to the company, pay the strike price, and convert them into actual stock. And even after you do that, you’re holding shares in a private company with no public market. You can’t call a broker. The value is theoretical until something specific happens. More on that in a minute.
How Vesting Works
Here’s the most common setup: a four-year vest with a one-year cliff.
Say your offer includes 1,000 options. Here’s what that schedule actually looks like:
Months 1–11, you’re employed and earning your options — but you don’t own any yet. At month 12, you hit the cliff: 250 options vest all at once. That’s 25% of your grant, earned at your one-year anniversary. After that, the remaining 750 vest gradually over the next three years, either monthly (~20.8 options/month) or quarterly (~62.5 options/quarter), depending on the company.
At the end of year four, all 1,000 options are fully vested.
“Fully vested” does not mean you’ve been paid. It means you’ve unlocked the right to buy all of them at your original strike price. That’s it.
One thing worth knowing: the four-year cliff structure is standard, but every company writes its own terms. Some have two-year cliffs. Some vest monthly from day one. Some have performance-based components layered on top. Some offer acceleration clauses — if the company gets acquired, a portion of your unvested options vest automatically. Single-trigger acceleration (acquisition alone triggers it) is more candidate-friendly than double-trigger (requires both an acquisition and losing your job). Read your option agreement before you sign.
Vested Does Not Mean Paid
This is the part that trips people up the most.
When your options vest, nothing happens automatically. You’ve earned the right to purchase shares. To actually own them, you have to exercise — meaning you send the company a check for (number of vested options × strike price). With our example: 1,000 shares × $1.00 = $1,000 out of pocket, and now you own stock in a private company that you still can’t sell.
There’s a hard deadline most people learn about too late: if you leave the company, you typically have 90 days to exercise your vested options. Don’t, and you forfeit them permanently. That window has caught a lot of candidates off guard — especially when the exercise cost is significant or the tax situation is complicated.
And taxes are complicated. Exercising Incentive Stock Options (ISOs) — the most common type at startups — can trigger the Alternative Minimum Tax, even if you haven’t sold a single share yet. Before you exercise anything, talk to a tax advisor. It’s not a reason to avoid equity. It’s a reason not to wing it.
What About RSUs?
If a company offers RSUs (Restricted Stock Units) instead of options, the mechanics are simpler. RSUs are a promise to give you actual shares once you hit your vesting milestones — no strike price, no exercise decision. When they vest, you own the shares, and you’ll owe income tax on their value at that point.
RSUs are more common at later-stage or pre-IPO companies where valuations are high enough that asking employees to buy shares at a steep strike price doesn’t make sense. Early-stage startups use options because the low strike price makes them more accessible.
One thing candidates sometimes ask: do RSUs pay dividends? Generally no — not until they vest and become shares, and even then only if the company has a dividend policy, which most startups don’t. Profit-sharing programs exist at some companies, but they’re separate from equity and not common. If that’s something you want, ask about it directly rather than assuming it’s part of your grant.
How You Actually Make Money on Equity
This is the real question. There are only a few realistic paths.
Acquisition is the most common outcome. The company gets bought, and depending on the deal structure, your vested shares convert to cash or to shares in the acquiring company. Most startup equity stories end here — not with a splashy IPO, but with a quieter acquisition.
IPO is what people imagine when they think startup equity. When a company goes public, your shares become tradable on a stock exchange. But not immediately. After an IPO, employees are typically locked up for 180 days — prohibited from selling. The stock could be significantly higher or lower by the time your lockup expires. Research shows IPOs historically underperform comparable public companies in the months following lockup expiration, as insider supply floods the market. The trap is anchoring to the IPO price you watched from the sidelines. When your lockup opens, evaluate the stock on what it’s worth now.
And even after lockup, you’ll face blackout periods — windows around quarterly earnings announcements when insiders can’t trade. So six months of waiting, then a few more gaps per year before you can actually sell.
Secondary market sales are the path most candidates don’t know exists. Some private companies allow employees to sell vested shares — or even options — to outside investors before any exit event. This typically happens during a new funding round or through platforms like EquityZen or Forge Global that specialize in private share transactions. Not every company allows it. Some restrict it entirely. Others facilitate it as a retention perk for long-tenured employees. It’s a legitimate question to ask before you join: does the company have a history of opening secondary windows?
Tender offers have become more common as companies stay private longer. A company — or an outside investor — offers to buy back shares directly from employees at a set price. If one comes your way, read the terms carefully. The price may be below what you believe the shares are worth, but liquidity has real value when there’s no other way to access it.
Taking equity as a bonus is worth mentioning. Some companies let you take part (or all) of a bonus in the form of additional equity grants rather than cash. It can make sense if you have genuine conviction in where the company is going. It can also be a bad trade if the company never reaches a liquidity event. Think carefully before you swap guaranteed cash for more speculative upside.
The Questions You Should Be Asking
Most candidates focus on the number of options in their offer. That’s the least important data point. Here’s what actually matters:
What is the current strike price, and what 409A valuation is it based on? This tells you where you’re starting relative to the company’s current value.
What percentage of the company do my options represent? Raw share numbers mean nothing without knowing total shares outstanding. 10,000 options at a company with 10 million shares outstanding is very different from 10,000 options at a company with 100 million.
What did investors pay per share in the last funding round? This is the preferred stock price. It tells you how your strike price compares to what the people with the most information thought the company was worth.
Has the company opened secondary windows for employees before? This tells you whether leadership views employee liquidity as a priority — or an afterthought.
What’s the post-termination exercise window? The standard is 90 days, but some employee-friendly companies offer 5–10 years. If you ever leave before an exit, this could be the difference between keeping your equity and losing it.
What’s the liquidation preference structure? Investors typically have preferences that get paid out before common shareholders. In a modest exit, employees can get little or nothing even if the headline acquisition number sounds good. Ask how the waterfall works.
The Honest Bottom Line
Startup equity is a long-term, illiquid bet on a company’s success. It can be worth a lot. It can also be worth nothing. Most candidates don’t end up with zero, but most also don’t end up with the life-changing number they imagined when they signed.
The candidates who get the most out of it are the ones who understand exactly what they’re holding, ask the right questions upfront, and — this matters — don’t let equity offers substitute for competitive base compensation.
Salary is real. Equity is speculative. If a company is using a big equity grant to justify paying you below market on salary, push back. Treat equity as a potential bonus on top of fair compensation — not the reason to accept less of it. And when you’re ready to negotiate, here’s exactly how to do that.
If you have a specific offer in front of you and want to work through the numbers — that’s exactly the kind of conversation we have with candidates every day. Reach out here.
If you’re navigating an offer or exploring your next move, get in touch.
