Questions to Ask About Equity
Questions to Ask About Equity
Navigate equity compensation with confidence using these strategic questions that help you understand your ownership stake, valuation, tax implications, and the true value of your equity offer.
1What type of equity am I being offered (stock options, RSUs, etc.)?
What type of equity am I being offered (stock options, RSUs, etc.)?
Establishes the basic structure of your equity and how it differs from other compensation types.
2What is the current valuation of the company?
What is the current valuation of the company?
Helps you calculate the potential value of your equity stake and understand the company's current worth.
3What is the strike price or grant price of my options?
What is the strike price or grant price of my options?
Determines how much you'll need to pay to exercise your options and your potential profit.
4What is the vesting schedule and cliff period?
What is the vesting schedule and cliff period?
Clarifies when you actually own your equity and how long you need to stay to receive it.
5What percentage of the company does this equity represent?
What percentage of the company does this equity represent?
Helps you understand your actual ownership stake, which is more meaningful than just the number of shares.
6What is the total number of outstanding shares, including options pool?
What is the total number of outstanding shares, including options pool?
Provides context for calculating your percentage ownership and how dilution affects your stake.
7What happens to my equity if I leave the company before or after vesting?
What happens to my equity if I leave the company before or after vesting?
Clarifies your rights and obligations if you decide to leave, helping you understand the lock-in period.
8Is there a post-termination exercise window, and how long is it?
Is there a post-termination exercise window, and how long is it?
Determines how much time you have to exercise options after leaving the company.
9What are the tax implications of this equity grant?
What are the tax implications of this equity grant?
Helps you understand potential tax liability and plan for the financial impact of exercising or vesting.
10Has the company done a 409A valuation recently?
Has the company done a 409A valuation recently?
Confirms that the strike price is set at fair market value and the company is complying with tax regulations.
11What is the company's funding history and future plans?
What is the company's funding history and future plans?
Reveals how dilution might affect your stake and what the company's growth trajectory looks like.
12What liquidation preferences exist for preferred shareholders?
What liquidation preferences exist for preferred shareholders?
Shows who gets paid first in an exit scenario and how it might affect your payout.
13Is there a secondary market where I can sell shares before an IPO?
Is there a secondary market where I can sell shares before an IPO?
Clarifies your liquidity options and whether you can realize value before an exit event.
14What is the company's exit timeline or IPO plans?
What is the company's exit timeline or IPO plans?
Helps you understand when you might be able to convert your equity to cash.
15How has the company's valuation changed over recent funding rounds?
How has the company's valuation changed over recent funding rounds?
Shows the trajectory of the company's value and whether your equity is likely to appreciate.
16What are the acceleration clauses in case of acquisition?
What are the acceleration clauses in case of acquisition?
Clarifies what happens to unvested equity if the company is acquired before your vesting completes.
17Can I exercise options early to start the capital gains clock?
Can I exercise options early to start the capital gains clock?
Determines whether you can optimize your tax situation by early exercise and filing an 83(b) election.
18What rights do common shareholders have versus preferred shareholders?
What rights do common shareholders have versus preferred shareholders?
Reveals what voting rights and privileges you have as an equity holder.
19How does the option pool affect my ownership percentage?
How does the option pool affect my ownership percentage?
Helps you understand how future hires and option grants will dilute your stake.
20Can I see the equity agreement and stock option plan documents?
Can I see the equity agreement and stock option plan documents?
Ensures you have access to the full legal terms and can review them with a lawyer or advisor.
Want to learn more?
Best Practices for Equity Discussions
Want to learn more?
Best Practices for Equity Discussions
Best Practices
Get Everything in Writing
Never rely on verbal promises about equity. Make sure all terms, vesting schedules, and valuations are documented in your offer letter and option agreement.
Consult with Experts
Equity compensation is complex. Consider consulting with a lawyer, accountant, or financial advisor who specializes in startup equity.
Focus on Percentage, Not Share Count
The number of shares means nothing without knowing the total outstanding shares. Always think in terms of ownership percentage.
Question Sequences
The Basic Understanding Sequence
The Value and Rights Sequence
Common Pitfalls
Don't Assume Equity Equals Cash
Equity is only valuable if the company succeeds and you can eventually sell it. Don't sacrifice too much salary for equity in an early-stage company.
Don't Forget About Dilution
Your ownership percentage will decrease with each funding round. Factor in expected dilution when evaluating your equity package.
Don't Skip Due Diligence
Research the company's financial health, funding history, and growth prospects. Equity in a failing company is worthless.