1Why equity is hard to evaluate
Most candidates accept equity at face value: a number of shares or options. The number is meaningless without knowing the total shares outstanding, the current valuation, the strike price (for options), the vesting schedule, and the likelihood of any exit. Companies often present equity to make it sound larger than it is, or genuinely don't present the context needed to evaluate it.
The goal isn't to solve the valuation problem completely. Pre-IPO equity is genuinely uncertain. The goal is to ask the right questions, understand the structure, and negotiate from a position of knowledge rather than hope.
Consider the gap between two real-sounding offers. "20,000 options" at a company with 200M fully diluted shares is 0.01% of the business. The same 20,000 options at a company with 10M shares is 0.2%, twenty times the ownership for the identical headline number. A recruiter can quote you a five-figure option count and it can represent almost nothing or a meaningful stake. The number alone tells you nothing, which is exactly why it gets quoted alone.
Equity Terms Worth Asking About
What each term means and the exact question to ask
| Term | What it means | What to ask | |
|---|---|---|---|
| Fully diluted shares | Your % ownership = your shares / this number | "What's the total fully diluted share count?" | |
| Strike / 409A | The price you pay to exercise options | "What's the current 409A valuation?" | |
| Liquidation preference | Who gets paid first in an exit, and how much | "What preferences sit on the preferred stock?" | |
| Vesting + cliff | When shares become yours (4yr / 1yr cliff standard) | "What's the schedule and the cliff length?" | |
| Exercise window | How long you can buy options after leaving | "Is the post-termination window 90 days or extended?" |
Three answers do most of the work: fully diluted count, 409A, and the liquidation preference stack.
2What you need to know before negotiating
The 5 Questions to Ask Before Evaluating Equity
1. What's the total shares outstanding (fully diluted)?
- 10,000 options means nothing without knowing the total. If there are 100M shares outstanding, 10K options is 0.01% of the company. If there are 10M shares outstanding, it's 0.1%. An order of magnitude difference on the same "10,000 options" offer.
- Most early-stage companies will share total outstanding shares if asked directly. Some won't, which is itself a signal about transparency.
2. What's the current preferred share price / 409A valuation?
- For options, the strike price is typically set at the 409A valuation (fair market value of common stock at time of grant). The 409A is legally required and updated periodically. If the 409A is $2/share and the preferred stock is at $10/share, you're behind the liquidation preference waterfall.
- For RSUs (more common at later-stage companies), the grant value at current FMV is more transparent, but still subject to the same dilution and liquidation dynamics.
3. What are the liquidation preferences?
- This is the question most candidates forget to ask and most companies don't volunteer. If a company has taken $50M in preferred investment with a 2x liquidation preference, the first $100M of any exit goes to preferred shareholders before common shareholders (including option holders) see anything.
- Ask: "What are the liquidation preferences on the preferred equity outstanding?" A company that has raised at high valuations with heavy preference stacks can produce zero returns for common shareholders even in a modestly positive exit.
4. What's the vesting schedule and cliff?
- Standard vesting is 4-year vesting with a 1-year cliff. The cliff means you receive 0 equity if you leave before 12 months. After the cliff, vesting is typically monthly.
- Non-standard terms: 5-year vesting, 6-month cliff, or back-loaded vesting (larger share in years 3–4) are all negotiable. A 1-year cliff that can be shortened to 6 months is a meaningful change if you're uncertain about fit.
5. What's the post-termination exercise window?
- Options expire if you don't exercise them within a window after leaving the company. Standard is 90 days. Some companies offer 5-year or 10-year windows ("extended exercise windows"). These are significantly better for employees.
- A 90-day window means you need to buy your options within 3 months of leaving, often at a price that requires significant cash. Extended windows remove this pressure. It's worth asking and potentially negotiating.
3Rough equity benchmarks by stage
Ownership percentage matters more than share count, and what counts as a reasonable percentage moves with company stage. Earlier employees take more risk and should hold more of the company; later employees join a more proven business and hold less. The benchmarks below are starting points, not guarantees. A director or VP-level hire typically commands 2–3x the relevant range.
Use these to sanity-check an offer. If you're employee #8 at a seed-stage company and the grant works out to 0.02%, that's well below the typical band and worth pushing on. If you're employee #150 at a Series C company, 0.03% is reasonable and arguing for 0.3% will read as not understanding the stage.
Two things distort these numbers in practice. Dilution: every future funding round issues new shares, so your percentage shrinks even though your share count stays fixed. A 0.2% grant today can be 0.1% after two more rounds, which is normal and not something to panic about, but it means you should treat the percentage as a snapshot, not a guarantee. And refresh grants: many companies top up equity at promotion or each year, so the initial grant isn't the whole story. Ask whether refreshers are standard and roughly what they look like, because a smaller initial grant with a real refresh policy can beat a larger one-time grant with none.
Typical Early-Employee Equity
Non-founder ranges by funding stage
0.1–0.5%
Seed (employee #5–15)
0.05–0.2%
Series A (employee #20–50)
0.01–0.05%
Series B+ (employee #100+)
2–3x
Director / VP multiplier
Wide variance by role, company, and market. Treat these as a sanity check, not a promise.
4How to negotiate
Equity negotiation is easier than most candidates assume. The ask: "I'd like to understand the equity package better before I can evaluate the offer. Can you share the total shares outstanding, current 409A valuation, and the liquidation preference structure?" This is a reasonable due diligence request, not a red flag.
Once you have the numbers: calculate your percentage ownership (your shares / total outstanding). Assess the realistic exit scenario ranges. Decide if the equity is meaningful at different exit multiples, or if it's essentially lottery tickets you should weight at near-zero.
Negotiating more equity: "Based on my calculation, the equity represents approximately 0.05% of the company. Given the comp discount from market rate, I was hoping we could get to 0.08–0.1%. Is there flexibility there?" Name a specific percentage, not a share count. Anchoring on a percentage forces the conversation onto the real metric and signals you understand what you're being offered. To anchor your base salary in the same conversation, pull actual wage data from the H-1B salary database. LCA filings disclose what employers really pay for your role, which is harder to wave away than a self-reported range.
Written by
Jesse Johnson
Founder, ShouldApply
Founder of ShouldApply. I write about job search strategy, hiring, and how to spend your time on opportunities that actually fit. Full bio →
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Frequently Asked Questions
Only if you can quantify the expected value of the equity trade-off honestly. Most startup equity produces zero at exit. A $20K base salary reduction for equity that requires a specific exit scenario to be worth $50K is a bad trade for most candidates. The question is: at what outcome probability does this equity cover the salary discount? Be honest about that probability.
Rough benchmarks by stage: Seed (employee #5-15): 0.1-0.5%. Series A (employee #20-50): 0.05-0.2%. Series B+ (employee #100+): 0.01-0.05%. Director/VP level add 2-3x to these ranges. These are starting points. Actual ranges vary widely by role, company, and market conditions.
RSUs are simpler and don't require you to exercise (buy) them. They're more common at late-stage companies and public companies. The trade-off: options at a low strike price in an early-stage company can have higher upside if the company does well. RSUs at a late-stage company are closer to cash with a vesting schedule. Which is better depends entirely on the stage and valuation of the company.
You can ask. Some companies will share a simplified version. Most won't share the full cap table at the candidate stage. The 409A, total shares outstanding, and liquidation preference structure are more realistic to get, and those three numbers give you most of what you need to evaluate the equity.
A liquidation preference is a contractual right that pays preferred investors back before common shareholders see anything in an exit. A 1x non-participating preference returns the investment first, then splits the rest. A 2x or participating preference is heavier and can leave common shareholders (including your options) with little or nothing in a modest exit. If a company raised $80M at a 2x preference, the first $160M of any sale goes to investors before your equity is worth a dollar. Ask for the preference structure before you weight the equity at all.
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