Startup job offers often include an element of uncertainty. The company may offer an exciting role, rapid professional development, and the chance to work closely with founders or senior leaders. The salary may be lower than a comparable role at an established business, but the employer may offer equity as part of the compensation package.

Equity can be valuable if the company grows successfully. It can also have little or no value if the business does not achieve its goals, if the employee leaves before the equity vests, or if there is no opportunity to sell the shares.

Before accepting a startup offer, candidates should understand exactly what they are being offered. They should also assess whether the salary and other guaranteed benefits are sufficient without assuming that the equity will create future wealth.

Salary and Equity Serve Different Purposes

Salary is guaranteed compensation for the work you perform. It is paid regularly and helps you meet your current financial responsibilities.

Equity is a possible ownership interest in the company. Its value depends on the company’s future performance and the terms attached to the offer.

A startup may offer direct shares, stock options, restricted stock units, or another type of long-term incentive. These arrangements have different legal and financial effects.

Stock options usually give the employee the right to buy shares later at a fixed price. Direct shares provide ownership immediately, although they may still be subject to restrictions. Restricted stock units may become shares only after certain conditions have been met.

The employer should be able to explain the arrangement clearly. If the terms are vague, the equity should not be treated as a meaningful part of the package until you receive the relevant documents and understand them.

Ask What Percentage of the Company You Would Receive

A company may say that it is offering 5,000 or 10,000 options. That number does not tell you much unless you know how many shares or options exist overall.

A more useful question is:

“What percentage of the company would this equity represent on a fully diluted basis?”

A fully diluted percentage takes account of shares and options that may be issued to founders, investors, employees, and other stakeholders. This provides a clearer view of your potential ownership than the number of options alone.

The percentage may change in the future if the company raises capital or issues additional equity. This reduction in ownership percentage is known as dilution.

Dilution is not always negative. A smaller percentage of a growing and valuable company may still be worth more than a larger percentage of a company that does not progress. However, candidates should understand that their ownership percentage may not remain fixed.

Understand the Vesting Schedule

Most startup equity is earned gradually through a vesting schedule. A common arrangement requires an employee to remain with the company for a set period before they earn any equity. After that initial period, the equity may vest monthly or quarterly over several years.

The initial period is often called a cliff. If you leave before the cliff date, you may lose all of the unvested equity.

You should ask the employer the following questions:

• How long is the vesting period?
• Is there an initial cliff?
• What happens if I resign before all equity has vested?
• What happens if the company ends my employment?
• What happens if the company is sold?
• Does any equity vest immediately if the company is acquired?
• How long do I have to exercise options after leaving?

These questions are important because an equity offer may appear generous but offer little practical benefit if the vesting terms are restrictive.

Find Out Whether You Must Pay to Exercise Options

If the company offers stock options, ask for the exercise price. The exercise price is the amount you may need to pay for each share if you decide to convert your options into shares. An employee with several thousand options may need a substantial amount of money to exercise them.

You should also ask when that payment would be required. In some cases, employees must make a decision soon after leaving the company. This can create pressure if the shares cannot be sold immediately.

Tax treatment can also vary depending on the country, the type of equity plan, and your personal circumstances. You should consider obtaining independent tax or legal advice if the potential value or financial commitment is significant.

Equity can create opportunity, but it can also create obligations that are easy to miss during an enthusiastic recruitment process.

Do Not Assume That a Valuation Equals Cash Value

Startups often discuss their latest valuation, particularly after an investment round. A valuation can indicate that investors see potential in the business, but it does not guarantee that an employee can sell their shares at that price.

Private-company shares are often difficult to sell. There may be no public market, no immediate buyer, and no guarantee that the company will be acquired or listed on a stock exchange.

A startup may become successful, remain private for many years, or fail entirely. Candidates should therefore treat equity as potential upside rather than money that will definitely be available in the future.

A useful question is whether the job would still make sense if the equity never became valuable.

If the salary, benefits, workload, learning opportunity, and career progression are not sufficient without equity, then the offer may involve more risk than you can reasonably accept.

Assess the Company Before You Accept the Risk

You do not need access to confidential financial documents to ask sensible questions about a startup.

You can ask about the company’s business model, customers, funding stage, growth plans, team structure, and current priorities. You can also ask why the role has become available and what success would look like in the first year.

A company does not need to disclose everything. It should, however, be able to provide enough context for you to understand the opportunity and the risk.

When comparing startup opportunities through Jobs Hub, compare the full package. Consider the salary, benefits, flexibility, reporting line, workload, development opportunity, and equity terms together.

A lower salary can sometimes be reasonable if the role provides exceptional learning, responsibility, or long-term opportunity. However, those benefits should be specific and realistic rather than based only on a possible future exit.

Final Thoughts

Equity can be a valuable part of a startup offer, but it should not be accepted without clear information.

Ask what type of equity you are receiving, what percentage it represents, when it vests, what it may cost to exercise, and what happens if your employment ends. You should then assess whether the salary and the role are worthwhile on their own terms.

A strong startup offer provides fair compensation for the work you perform now and gives you a genuine opportunity to benefit if the company succeeds in the future.

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