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Start with a cash baseline you can actually count on
Choose a common period—usually one year, with a second view over the expected vesting period—and record only compensation that is contractually reliable. Separate guaranteed amounts from items dependent on company or individual performance.
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| Cash component | Questions to answer |
|---|---|
| Base salary | What is the annual amount, pay frequency and start date? Is any portion deferred or subject to a condition? |
| Bonus | Is it guaranteed, target-based or discretionary? What performance, employment-date and repayment conditions apply? |
| Benefits | Compare employer retirement contributions, health-insurance costs, paid leave and other benefits using your actual expected value, not a generic package estimate. |
| Sign-on and other cash | Record payment dates, clawbacks and whether the amount is guaranteed. |
For the cash-heavy offer, this produces a dependable-pay figure. Build the same list for the startup, but do not add an unvested grant, a hoped-for raise or a possible future bonus to guaranteed cash. Keeping these categories separate prevents a speculative outcome from masking a near-term budget shortfall.
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Determine the security or award type
Ask whether the offer is for incentive stock options (ISOs), nonstatutory or nonqualified stock options (NSOs), restricted stock, restricted stock units (RSUs), or another instrument. The label determines what you receive, when you may own or buy shares, and which tax rules may apply. A term sheet or recruiting email is not a substitute for the plan and award agreement.
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- For an option, you receive a right to buy shares later at a strike (exercise) price; you do not own the shares merely because the option was promised.
- Restricted stock generally involves issuing shares subject to vesting and forfeiture conditions.
- RSUs are promises to deliver shares or their value when vesting conditions are met; private-company settlement mechanics can differ, so read the agreement.
Request the complete plan, grant notice, and any board-approval or shareholder-approval condition. If approval is still pending, the economics may not yet be effective.
Convert the share count into a fully diluted percentage
A raw number such as “10,000 options” has no ownership meaning without a denominator. The basic snapshot is:
grant shares ÷ fully diluted shares = stated ownership percentage
Ask for the fully diluted share count used by the company and a definition of what it includes: issued common and preferred shares, outstanding options and warrants, the reserved but unissued option pool, and shares issuable on conversion of other securities where applicable. Also ask whether the percentage is calculated before or after a planned financing or option-pool increase.
Future issuance can dilute every existing holder. Therefore, the percentage in an offer is a starting snapshot, not a guaranteed percentage at an exit. Do not infer an individual grant from the size of the company’s option pool. Carta reports a median employee option-pool share of approximately 13.5% of fully diluted shares at seed stage and approximately 17.2% at Series D in 2026; those figures describe aggregate pools, not what one employee should receive.
Separate strike price from fair-market value
For an option, obtain the per-share strike price, the common-stock fair-market value used to set it, and the valuation date. Your initial exercise cost is:
vested options × strike price
The common-stock value used for an option grant is not automatically the same as a recent preferred-share financing price. Preferred investors may have liquidation preferences, conversion rights and other protections that common shares do not have. Treating the preferred financing price as the employee’s realizable value can materially overstate the grant.
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A 409A valuation is generally used to establish fair-market value for tax and option-pricing purposes. It is a reference point, not a promise that a buyer will pay that price or that you can sell shares at it.
Map vesting, cliffs and departure rules
Vesting determines when you earn the award. Confirm the exact schedule, cliff, vesting start date, any performance conditions, and whether acceleration applies on a sale or on a qualifying termination. A cliff can mean that leaving before the cliff leaves none of that portion vested; the governing documents control the result.
For vested options, ask how long you have to exercise after employment ends and whether the period differs for resignation, termination without cause, termination for cause, death or disability. A 90-day post-termination period has historically been common, while some companies offer longer windows, according to Carta’s educational guidance. That market context does not establish the period in your offer.
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Determine whether exercising after departure changes an ISO to an NSO, whether the company can repurchase shares, and what happens to unvested awards. Never rely on a recruiter’s summary when the plan uses a different definition.
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Private-company shares may not be sellable when you need cash. Ask whether the company has conducted employee tenders, secondary sales, repurchase programs or another liquidity event; who may participate; the minimum holding or tenure requirements; the price-setting process; fees; and whether board, investor or transfer approvals are required. No general market statistic can establish this company’s liquidity or exit prospects.
Also ask what happens if the company is acquired, merges, goes public or shuts down. The capitalization table, investor preferences and transaction documents determine whether common holders receive proceeds after senior claims.
Build scenarios instead of a single “equity value”
No source establishes a universal probability-of-exit or risk-discount formula. A useful model therefore displays assumptions and several outcomes, including no liquidity. It should show how many shares vest, estimated ownership after dilution, exercise cost, taxes and the timing of any sale.
Illustrative worksheet
The following numbers are purely an example of the method, not a forecast or benchmark. Replace every input with the company’s documents.
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1Clear out junk files and repair common Windows errors2Scan for outdated or missing drivers - takes under a minute3Repair Windows errors before they cause bigger problems| Input | Downside case | Middle case | Upside case |
|---|---|---|---|
| Grant | 10,000 options, four-year vesting with a one-year cliff (illustrative) | ||
| Fully diluted shares at grant | 10,000,000 (illustrative; verify denominator and inclusions) | ||
| Initial stated ownership | 0.10% before future dilution (10,000 ÷ 10,000,000) | ||
| Shares vested at event | 0 or the amount vested on your departure date | Amount vested at the assumed sale date | Amount vested at the assumed sale date |
| Future dilution | High dilution or no financing outcome | Moderate dilution assumption | Lower dilution assumption |
| Company outcome | No sale or no proceeds to common holders | Sale at an assumed value after senior claims | Sale at a higher assumed value after senior claims |
| Employee proceeds | $0, subject to any actual liquidity | Estimated common-share proceeds minus exercise cost and taxes | Estimated common-share proceeds minus exercise cost and taxes |
For each sale case, calculate the number of vested shares multiplied by an assumed common-share proceeds figure, then subtract the strike cost and estimated taxes. If you know only an enterprise or headline transaction value, do not convert it directly into employee proceeds; investor preferences, debt, option treatment and transaction expenses may come first.
Show a time dimension as well. A payout in six months and the same nominal payout in eight years have different usefulness, tax timing and risk. Include a “no liquidity during my expected employment” row even if management describes an eventual public offering as likely.
Understand U.S. federal tax timing before exercising
Tax treatment depends on award type, dates, exercise and sale details, income and jurisdiction. The following is general U.S. federal information, not individualized advice.
ISOs
IRS Publication 525 (2025) explains that statutory options generally do not create regular income at grant or exercise when the relevant requirements are met. However, exercising an ISO can create an alternative minimum tax (AMT) adjustment based on the spread between fair-market value and the exercise price. The IRS states: “Your AMT basis in stock acquired through an ISO is likely to differ from your regular tax basis.” That difference means you may need separate basis records and could face tax before a sale.
Holding periods affect whether a later sale receives favorable treatment. The exact result requires the grant date, exercise date, sale date and your tax return facts.
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NSOs
For a nonstatutory option without a readily determinable fair-market value, the IRS says income generally arises at exercise on the spread between the stock’s fair-market value and the amount paid. The company may withhold taxes, but you still need to plan for the cash required to exercise and any tax due.
Get advice before committing cash
Ask a qualified tax professional to review the award agreement and a proposed exercise. This is especially important when exercising would require substantial savings, create AMT exposure, or occur while the shares remain illiquid. Rules outside the United States can differ substantially.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Compare the offers on the same decision axes
| Axis | Cash-heavy offer | Startup-equity offer |
|---|---|---|
| Near-term guaranteed pay | Salary and guaranteed compensation after verifying conditions | Salary and guaranteed compensation; equity stays separate |
| Equity instrument | Any stock award, its vesting and liquidity terms | Award type, number of shares or options, strike and fully diluted percentage |
| Retention conditions | Bonus or vesting requirements, if any | Cliff, schedule, acceleration and treatment on termination or sale |
| Cash and tax required | Ordinary compensation taxes and any repayment obligations | Exercise cost, applicable U.S. federal tax category, possible ISO AMT and sale timing |
| Liquidity and downside | How reliably compensation arrives | Whether shares can be sold, when, under what restrictions, and the possibility of no proceeds |
| Negotiation choices | Salary, bonus and benefits | Salary or sign-on cash, grant details, vesting and exercise period |
Weight these axes according to your emergency savings, debt, family obligations, risk tolerance, desired career exposure and ability to wait for a possible payout. There is no defensible universal score that turns the two offers into one “correct” answer.
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Use this diligence checklist before accepting
- Request the documents: plan, grant notice, award agreement, capitalization summary and any side letter.
- Confirm the instrument: ISO, NSO, restricted stock, RSU or another award, plus eligibility and approval status.
- Verify the denominator: fully diluted shares, included securities, and whether the quoted percentage is before or after planned financing or pool changes.
- Record pricing data: strike price, common-stock fair-market value and valuation date.
- Map vesting: start date, cliff, installments, performance conditions and acceleration.
- Read departure terms: what vests, what is forfeited, the post-termination exercise period and any change in tax treatment.
- Calculate exercise cash: vested options multiplied by the strike, plus any withholding or transaction fees.
- Investigate liquidity: past or planned employee sales, transfer restrictions, approvals, pricing and eligibility.
- Model dilution and preferences: use scenarios rather than assuming today’s percentage or financing price persists.
- Obtain tax advice: especially before an ISO exercise, a large NSO exercise or an exercise after leaving.
Negotiate the terms that change your actual risk
Ask for changes in the order that matters to your finances. If the company cannot increase equity, discuss higher guaranteed salary or a sign-on payment. You can also request a clearly stated fully diluted percentage, a larger grant, a longer post-termination exercise period, or written clarification of acceleration and liquidity provisions. Employer flexibility is unknown, so treat these as discussion points rather than promises.
Make every request concrete: “Please state the grant as a percentage of the fully diluted capitalization as of a named date and identify the securities included,” is more useful than “Is this a lot of equity?” If a lower salary is being justified by upside, ask the company to show the assumptions behind that upside and keep your own downside case independent of its forecast.
Common comparison errors
- Dividing by the wrong denominator: using issued shares instead of fully diluted shares inflates the apparent percentage.
- Using preferred price as common value: investor rights can make the two securities economically different.
- Counting unvested awards as owned: departure before vesting can eliminate some or all of the grant.
- Ignoring exercise cash: an in-the-money option can still require a large payment before any sale.
- Assuming a 90-day rule: the actual post-termination period is whatever the documents provide.
- Ignoring dilution: future fundraising and pool increases can reduce your eventual percentage.
- Assuming liquidity: a private share may remain unsellable for years or produce no proceeds.
- Applying one tax answer to every award: ISO and NSO timing, holding periods and individual circumstances differ.
- Turning a scenario into a salary equivalent: a modeled upside case is not dependable annual compensation.
What the available statistics do—and do not—tell you
Carta reported that 32.8% of vested, in-the-money startup options were exercised in the second quarter of 2024 in its first-half 2024 report. This is a historical aggregate of exercise activity, not the probability that your options will be exercised, become liquid or generate a profit. It does not establish an expected value for your offer.
The approximately 13.5% seed-stage and 17.2% Series D option-pool figures are similarly descriptive of aggregate pools. They cannot tell you whether a particular employee grant is competitive without role, seniority, financing stage, dilution assumptions and the company’s compensation philosophy.
A practical decision rule
Accept the startup offer only if its guaranteed cash works for your needs without relying on an equity payout. Then decide whether the documented equity provides enough potential upside for the additional risks: forfeiture through vesting, dilution, exercise funding, tax timing, illiquidity and the possibility of no proceeds. If the startup cannot provide the denominator, award documents or exercise terms, treat the equity value as unresolved and negotiate cash or written clarification rather than filling the gaps with optimistic assumptions.
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