How To Negotiate A Startup Offer When Equity Is Half The Package
The terms that decide what startup equity is really worth to you, from exercise windows to acceleration, and the levers worth pushing on beyond the number of shares.
Most candidates negotiate the one number they can see: the count of options in the offer letter. It is often the least useful number to push on. The terms around the grant can matter as much as its size, and founders frequently have more flexibility on them than on the headline figure.
Before you negotiate anything, make sure you understand what you are being offered. Then decide which terms matter most to you, because asking for everything rarely works.
Know what kind of equity it is
Most startup employees receive stock options: the right to buy a set number of shares at a fixed price, the strike price, set at the fair market value when the option is granted. Options come in two tax types. Incentive stock options can qualify for more favorable tax treatment if holding requirements are met, but exercising them can trigger the alternative minimum tax. Nonqualified options are taxed as ordinary income on the difference between the strike price and the market value when you exercise. The IRS explains the mechanics for both types.
Later-stage companies sometimes grant restricted stock units instead, which are taxed differently and do not need to be bought. Founders and very early employees may receive restricted stock outright, subject to vesting. If you receive restricted stock that vests over time, an election under Section 83(b) of the tax code, which must be filed with the IRS within a short, strict deadline after the grant, can change when and how you are taxed. Speak to a tax adviser before your start date if this applies.
Understand vesting and the exercise window
A common vesting schedule spreads the grant over four years with a one-year cliff, meaning nothing vests until your first anniversary, and then a portion vests at once. Ask whether the schedule differs.
Check whether vesting continues during a leave of absence and what happens to unvested shares if your role changes to part-time. Plans differ, and the details live in the plan document, not the offer letter.
The exercise window is the term most candidates overlook. Under many plans, if you leave the company, you have a limited period, often 90 days, to buy your vested options or lose them. Exercising can require significant cash and, depending on the option type, trigger a tax bill on gains you cannot yet sell. Some companies offer longer post-termination exercise windows. This is one of the most valuable terms to ask about, because it decides whether you can actually keep the equity you earn.
The levers worth pushing on
Grant size is negotiable, but within limits, because companies try to keep grants consistent across levels. A more productive approach is to ask what the range is for the level and where your offer sits within it, then make a case for moving up based on your experience.
Ask for a longer exercise window if the plan allows the board to extend it. Ask whether early exercise is permitted, which lets you buy unvested options at the current strike price and can start holding periods sooner, though it means putting cash at risk.
For senior roles, ask about acceleration. Single-trigger acceleration vests some or all of your unvested equity when the company is acquired. Double-trigger acceleration requires both an acquisition and your termination without cause within a set period. Double-trigger is far more common, and many companies will consider it for executives.
Ask how refresh grants work. Your initial grant vests over a few years. A company with a clear refresh policy is more likely to keep your equity stake meaningful after that.
Ask about the company's policy on selling or transferring shares too. Startup stock usually cannot be sold freely, and the company often holds a right of first refusal over any transfer. Some companies run occasional tender offers and others never do. The policy tells you how long your equity is likely to stay illiquid.
Finally, consider the cash and equity mix. Some companies will let you choose more salary and fewer options, or the reverse. Make that choice based on your personal financial position, not on the founder's enthusiasm for the equity.
What to do before you accept
Ask for the plan documents and the form of option agreement, not only the offer letter. Confirm the option type, strike price, vesting schedule, cliff, exercise window and any acceleration terms. Ask for the fully diluted share count so you can calculate your percentage. Pick two or three terms that matter most to you and negotiate on those. And get the final terms in writing, because a verbal promise about equity is worth very little once the board approves a grant on the standard terms.
This is general information, not tax advice. Rates and thresholds change; confirm current figures with the agencies linked below or with your accountant.
