Equity, in plain English
Many tech sales offers include stock. Here's what you're actually being given, and how to think about what it's worth.
Options vs RSUs
Stock options
- The right to buy shares later at a fixed price, the strike price.
- Worth something only if the share price rises above your strike.
- You usually pay to exercise them, and taxes can apply when you do.
- Most common at earlier-stage private companies.
RSUs (restricted stock units)
- Shares granted to you, with no purchase price.
- Worth something as long as the stock is worth anything.
- Taxed as income when they vest.
- Standard at public companies and common at late-stage private ones.
Vesting
You earn equity over time. A common schedule is four years with a one-year cliff: nothing for the first year, then a quarter of the grant, then the rest in monthly or quarterly slices. Leave before the cliff and you leave with nothing.
What it might be worth
An illustration, not a forecast. Say you're granted 10,000 options at a $2 strike price:
- If shares are later worth $10, that's a paper gain of $80,000 before taxes: ($10 − $2) × 10,000.
- If shares are worth $2 or less, the options are worth $0.
- If the company is sold for less than investors put in, investors are often paid back first, and common shareholders can get little or nothing.
A percentage only means something next to the company's value. Ask for the number of shares, the total shares outstanding, the strike price and the latest preferred share price.
Dilution
Each funding round creates new shares, so your percentage shrinks. That's normal; what matters is whether the company's value grows faster than your slice shrinks.
What to ask at each stage
| Stage | What you'll usually get | Ask about |
|---|---|---|
| Series A–B | Stock options. Highest upside and risk; years before you can sell. | Strike price, latest preferred price, shares outstanding, runway |
| Series C–D | Options, sometimes RSUs. Lower risk, more dilution to come. | Growth rate, path to profitability, tender offers |
| Pre-IPO | Often RSUs that fully vest only at an IPO or sale. | When shares become sellable, lockups, taxes at the event |
| Public | RSUs you can sell as they vest. | Vesting schedule, refresh grants |
Not financial, legal or tax advice. Equity terms vary widely by company; read your grant agreement and consider a tax professional before exercising options.