Startup Equity 101: Vesting, Dilution, and What Your Offer Is Worth
Equity is one of the most confusing parts of a startup offer. A grant quoted in shares or options sounds large, but the share count alone tells you nothing. What matters is the percentage of the company that grant represents, plus the rules that govern when and how you actually own it.
Vesting Basics
Most equity vests over four years with a one-year cliff. Before the cliff, dying or leaving means you keep nothing. After twelve months a chunk (usually 25%) vests, then the remainder vests monthly or quarterly. This protects the company but means new hires should expect a year of "free option surface" before any equity lands.
Restricted stock units (RSUs) are full shares that vest directly. Incentive stock options (ISOs) and non-qualified stock options (NSOs) give you the right to buy shares later at a strike price; their tax treatment differs and the timing of exercise matters.
Dilution and Valuation
Each funding round issues new shares, lowering your ownership percentage even if the number of shares you hold stays the same. If a startup raises several rounds before an exit, expect total dilution in the range of fifty percent for founders and early employees — sometimes more.
To assess an offer, ask three questions: how many fully diluted shares exist, what percent your grant represents today, and what conditions (vesting, exercise windows, change-of-control accelerators) apply. Without those numbers, the share count is meaningless.
This article is general information and not legal, tax, or financial advice. Equity specifics vary widely; have an attorney or accountant review any offer before signing.