Are early employees unsure how to value, compare and negotiate equity offers? Many find the paperwork opaque and the outcomes life-changing. This guide equips an early employee with the step-by-step framework, numeric benchmarks, negotiation scripts and checklists needed to treat equity like a financial asset—not a buzzword.
Key takeaways: what to know in 1 minute
- Equity is a package: salary, cash bonus, benefits and equity form total compensation; negotiate them together.
- Value matters more than percentage: strike price, option type, cap table and dilution determine real upside.
- Ask for clarity on terms: vesting, cliffs, acceleration, exercise window and option type (ISO/NSO/RSU) must be explicit.
- Benchmarks by stage and role: early engineers and PMs commonly receive 0.5%–4% depending on stage and seniority; use stage-specific ranges.
- Use scripts and trade-offs: propose salary ↔ equity tradeoffs with concrete numbers and fallback positions.
How to evaluate an equity offer step by step for startup employees
Step-by-step evaluation prevents emotion-driven decisions. The process below converts offer details into an estimated present and future value.
Step 1: collect every line item from the offer
Request a complete written summary that lists option type, number of shares, strike price, total shares outstanding (fully diluted), vesting schedule, cliffs, acceleration clauses, and any repurchase rights. An accurate cap table snapshot is essential.
Step 2: convert shares to percentage ownership
Percentage = number of granted shares / fully diluted shares. Always confirm whether the company uses fully diluted shares (including options pool) or only issued shares.
Step 3: estimate implied valuation and upside
Use the latest financing round (post-money or pre-money) to infer share price. If no round exists, use reasonable scenarios (seed, Series A, acquisition). Calculate outcomes for low/median/high exit multiples.
Step 4: model dilution and future rounds
Simulate 2–3 fundraising rounds and refresh the employee's percentage. Show best/worst-case exits with net present value (NPV) using conservative discount rates.
Step 5: incorporate tax and exercise cost
For stock options, compute the cost to exercise (strike × shares) and potential AMT exposure for ISOs. For RSUs, model ordinary income events at vesting.
Step 6: produce a decision metric
Create 3 metrics: 1) break-even exit value, 2) expected value under scenario probabilities, 3) personal affordability of exercise cost. If break-even exceeds realistic exit scenarios by large margins, request improved terms.
Equity negotiation simple guide for beginners: practical script and checklist
Negotiation should follow a simple structure: clarify, quantify, propose, trade, confirm.
Clarify: ask targeted questions
- What is the fully diluted capitalization?
- Is the grant ISO, NSO or RSU?
- What is the current option pool and planned increases?
- Are there any outstanding convertible notes or SAFEs that could materially dilute?
Quantify: show the math
Provide a brief spreadsheet summary (1 page) showing current percentage, exercise cost, and three exit scenarios. Numbers build credibility and anchor the conversation.
Propose: use a concrete trade
Scripts that work:
- "Given the current strike and dilution, a 0.75% grant matches market benchmarks for this role at seed with a $6M pre-money. If payroll flexibility is preferable, consider $7k extra annual salary and 0.5% equity."
- "If vesting acceleration is not available on change of control, request a two-fold increase in equity or single-trigger acceleration for acquisition."
Trade: prioritize non-equity concessions
A realistic employer will prefer salary flexibility. Offer to trade salary for equity or accept a lower base in exchange for a higher option count, documented as a written counteroffer.
Confirm: get changes in writing
Never accept verbal promises. Request an updated offer letter and updated cap table snippet prior to signing.
What to do if equity terms are unclear or missing for startup employees
Ambiguity is costly. When terms are unclear, the following steps protect the employee's economic interest.
Ask for a term-by-term summary
Request written answers for: vesting schedule, cliff, acceleration events, repurchase rights, board approval status and any outstanding convertible instruments.
Demand cap table transparency or a redacted snapshot
A redacted cap table that shows total shares outstanding and option pool size is reasonable. If the company refuses, treat valuation assumptions as uncertain and demand conservative protections.
Seek legal or tax review on ambiguous clauses
Complex terms—right of repurchase, 409A valuation, post-termination exercise windows—warrant counsel. For tax-sensitive items like ISOs vs NSOs, advise consultation with a tax professional.
Use conditional acceptance
If immediate signing is required, ask for conditional terms: acceptance contingent on receipt of a clarified offer letter within a set timeframe.
Stock options vs common stock for startup employees: concise comparison
Employees often confuse instruments. The comparison below isolates practical differences for negotiation.
| Instrument |
What it is |
Implications for employee |
| Stock options (ISO/NSO) |
Right to buy shares at strike price after vesting. |
Potential tax benefits (ISOs) but requires exercise cost; risk if company fails. |
| Common stock |
Actual shares issued to employee, sometimes with repurchase rights. |
Owning shares avoids exercise cost but may carry immediate tax events depending on 83(b). |
| RSUs |
Shares delivered at vesting without exercise. |
Taxed as ordinary income at vesting; simpler but less tax-advantaged than ISOs in some cases. |
How much equity should early employees get: benchmarks by stage and role
Benchmarks provide negotiating anchors. The ranges below reflect typical U.S. startup practices in 2026 and should be adapted for geography, role seniority and company traction.
- Founders/founder-level: 5%–50% depending on founder count and dilution history.
- C-level hires (early): 1%–5% at seed/early-stage.
- Senior engineer / product lead: 0.5%–2% at seed; 0.1%–1% at Series A.
- Mid-level ICs: 0.1%–0.5% at seed; 0.05%–0.2% at Series A.
- Early operations/customer success: 0.05%–0.5% depending on impact.
These ranges assume a standard option pool and typical dilution. For accurate negotiation, convert percentage to expected value under realistic exit scenarios.
Practical examples: counteroffer scripts with numbers
Example A — engineer at seed (company pre-money $6M, fully diluted shares 10,000,000):
- Original grant: 15,000 options at $0.30 strike → 0.15% ownership.
- Benchmark target: 0.5% (50,000 options).
Counteroffer script: "Based on stage and role benchmarks, a 0.5% grant (50,000 options at $0.30 strike) better aligns incentives. If headcount constraints prevent this, an alternative is $8k increase in annual salary plus 30,000 options."
Example B — senior PM at Series A (post-money $30M, fully diluted 20,000,000):
- Original grant: 0.3% equivalent.
- Benchmark target: 0.6%–1.0% depending on scope.
Counteroffer script: "Given product ownership and expected growth, request 0.8% with 4-year vesting and double-trigger acceleration on acquisition. If equity is fixed, request a market salary uplift of 10%."
Equity negotiation flow for startup employees
Equity negotiation flow for startup employees
🔍
Step 1 → review offer details (shares, strike, vesting)
🧮
Step 2 → convert to percentage and run scenario models
💬
Step 3 → prepare scripts and propose trade-offs
✍️
Step 4 → get revised offer and cap table in writing
✅
Success → accept with plan for exercise/tax steps
Advantages, risks and common mistakes when negotiating equity
✅ Benefits / when to ask for more
- When the role significantly affects valuation (revenue, product, technology).
- When salary trade-offs are possible and the employee can accept deferred upside.
- When competitors offer market-based equity in similar roles.
⚠️ Errors to avoid / risks
- Accepting equity without a cap table or 409A context.
- Overvaluing a headline percentage without assessing strike price and dilution.
- Missing post-termination exercise deadlines; exercising under pressure can be costly.
Questions frequently asked about equity negotiation for startup employees
How should an employee compare equity offers from two startups?
Compare effective ownership (%), strike price, vesting schedule, option type, company stage, and cap table projections; convert each offer into three exit scenarios to compare expected value.
What is a reasonable vesting schedule for early hires?
Standard is a four-year vesting with a one-year cliff; negotiate accelerated vesting on acquisition or longer post-termination exercise windows if possible.
How does dilution affect an early employee's ownership over time?
Dilution reduces percentage ownership as new shares are issued; model expected funding rounds and option pool refreshes to estimate post-round percentages.
When should an employee accept common stock instead of options?
Common stock can be preferable if the company grants shares with an 83(b) election opportunity and the employee can afford early tax/AMT considerations; legal and tax advice recommended.
What is double-trigger acceleration and why request it?
Double-trigger requires two events (e.g., acquisition + termination without cause) to accelerate vesting; it protects employees from being left unvested after an acquisition.
How much should a hiring manager disclose about the cap table?
A redacted cap table showing total shares outstanding and option pool is reasonable; full cap tables are less common but not unusual for senior hires.
- Gather the offer documents and request a redacted cap table and 409A memo.
- Build a one-page model showing percentage, exercise cost and three exit scenarios.
- Prepare a short counteroffer with a numeric equity target and one salary trade-off alternative.
