Understanding Equity


Equity 101: What does this mean?

Why it matters

Almost 100% of offerletter.io clients with startup job offers come to me with the same very simple question: “What does this equity mean?” The answer is quite complex. Equity and stock options are super complicated and difficult to value.

 

Lots of startups will promise you equity and stock options because they want to align incentives. The assumption is that if you have a financial incentive -- a stake in the company’s future success -- you will work harder and think longer-term than if you were simply taking a salary.

 

It's imperative that you take the time to understand the equity component in depth. It's entirely possible that a company will refuse to disclose some or all equity details. If that's the case, then you should strongly consider walking away entirely. You're basically being given a question mark in exchange for your work. Also, companies that aren't willing to be upfront about equity information may screw you in other ways in the future (you'd be surprised how common this is!).

 

Disclaimer: None of the information in this chapter is intended to be tax or legal advice. I encourage you to consult an independent, certified tax and equity expert.

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Learning Equity Details PREMIUM

This video will help you negotiate for the information you need to value your pre-IPO stock options. Remember - if you have to negotiate too much for equity details, or they're not forthcoming - it's usually best to turn the offer down.

Make sure you understand the key terms. Learn what to ask for to get all the right details about your offers. Go Premium and get the full course in negotiation, with videos, scripts, the equity calculator, and more.



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Equity 201: Evaluation on a risk-adjusted basis

Why it matters

Equity grants have a lot of nuance. Three very important things to keep in mind:

*Certain factors (strong teams, good revenue growth, etc) may increase the chances you’ll “win” something, but there’s still risk. This is why I encourage clients to first think about their career goals and happiness. Equity can be worth very little, very quickly. Skills, knowledge, and friendships will last a long time. It’s generally beneficial to optimize for the latter.


Disclaimer: This is not intended to be tax or legal advice. I encourage you to consult an independent, certified tax and equity expert.

This stuff can all seem pretty complicated at first. But I can take the mystery -- and the stress -- out of it for you. Go Premium get your complete action plan. Whether you're dealing with ISOs, RSUs, or something completely different.



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What if the company doesn’t answer these questions?

Why it matters

Not all companies will feel comfortable sharing all of this information. But, I believe that most reasonable companies should feel comfortable disclosing most of this information, and that lack of transparency can be a negative signal.

 

There are a handful of commonly-cited (and very valid) reasons for withholding key information, including:

  • “Our investors require us to keep it confidential.”
  • “If a competitor got a hold of this, it would be a major problem.”
  • “We don’t disclose these details as a matter of policy.”

There's so much more to learn. Sign up for Premium and get the full course in negotiation, with videos, scripts, the equity calculator, and more. It'll help you get what you are worth.



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