How to Understand Stock Options and Rsus

Friend: "I got an amazing offer! 50,000 shares!" Me: "What's the total outstanding shares?" Friend: "Um... I don't know" Me: "What type of shares are they?" Friend: "Not sure..." Me: "When can you sell them?" Friend: "I should probably ask..." I've had this conversation at least seven times in the last year, and here's the playbook I usually share with those friends. 1/ Understand the type of equity Not all equity is created equal: ↳ RSUs are actual shares that vest over time ↳ Stock options let you buy shares at a set price ↳ Preferred vs common stock have different rights 2/ Know your vesting schedule The classic is "4-year vest with a 1-year cliff" Translation: You get nothing if you leave before year 1 Then you get 25% after year 1 And ~2% each month after But don't assume this is standard. Always ask: ↳ What's my vesting schedule? ↳ Are there acceleration clauses? ↳ What happens in an acquisition? 3/ Get the full picture before discussing numbers Ask for: ↳ Total shares outstanding ↳ Latest 409A valuation ↳ Investor preferences ↳ Prior funding rounds ↳ Expected exit timeline 4/ Model different scenarios Don't just focus on the "we IPO at $10B" dream. Model out: ↳ Down round ↳ Flat round ↳ Modest growth ↳ Hyper growth ↳ Acquisition 5/ Understand the downsides If you're getting options, know that you might have to: ↳ Pay to exercise them (could be $$$$) ↳ Hold them for years before selling ↳ Pay taxes before seeing any gains ↳ Lose them all if you leave too soon 6/ Negotiate the details, not just the number Key terms to discuss: ↳ Early exercise options ↳ Extended exercise windows ↳ Acceleration triggers ↳ Refresher grants ↳ Tax implications 7/ Plan for the "what ifs" ↳ What if the company gets acquired? ↳ What if I need to leave early? ↳ What if the next round is a down round? Pro tip: Email these questions to the recruiter. Create a paper trail. Get the answers in writing. Remember: Equity can be life-changing. But it can also be worth zero. Your job isn't to be optimistic or pessimistic. It's to be realistic. What other equity negotiation tips would you add?

Are you looking for startup life but don't know a lick about equity? Lookie here: RSUs = Company gives you shares that vest over time. No purchasing required. If the company is public, you can sell them once vested. If private, you hold. Generally a 4-year vesting schedule with a 1-year cliff. Stock Options = You get the right to buy shares later at a fixed price (strike price). They can be valuable but only if the company grows and you can afford to exercise them. Very common with earlier startups as the ability for it to be liquid just isn't possible short-term. Public equity = Usually RSUs, easier to value. You can look up the stock price and understand what your equity is worth now (y'all should already know this). When you get an offer (or even better, starting at recruiter screen) ask: • Are these RSUs or options? • What’s the vesting schedule? Is there a cliff? • What’s the strike price and 409A valuation (for stock options)? • When does your equity become liquid or have the option to? • What happens to equity if I leave or the company gets acquired? *Tricky question, as acquisitions aren't guaranteed, but it's good to ask if there are any set rules in these scenarios Equity can be a huge payout but you need to know what you're signing up for, and this is only done by asking the right questions sooner rather than later.

Negotiating your startup equity package? 💰 If you are, you need to ask these 9 questions. 1. What type of options are they (ISOs, NSOs, RSUs)? Different stock options have different tax rules. Knowing the type helps you understand any tax benefits or costs. 2. Will you have the ability to exercise early? Exercising stock options early can save you on taxes. Ask if you can do this to potentially reduce tax costs. 3. What is the current 409(a) share price? This price tells you what the company's stock is worth right now. It's key for understanding what your shares are worth, especially as the company grows. However, it's less relevant in earlier-stage companies, as the value can change dramatically. In earlier-stage companies, the percentage of total shares granted is more relevant. In later-stage companies, this is useful when benchmarking the offer against industry data. 4. What is the current preferred share price? This is the price investors pay for shares. It can show you how much others value the company and how much your shares are potentially worth in the market. 5. What is the strike price for your shares? The strike price is what you pay to buy your shares. Knowing this helps you figure out the cost and possible profit of your shares. 6. What is the total number of outstanding shares? Knowing how many shares are out there helps you understand what portion of the company you own. Total number of shares granted / Total outstanding shares = % of the company you're being granted. This is useful when benchmarking the offer against industry data. 7. What is the total number of shares you'll be granted? This should be included in the initial offer and tells you how big your share in the company is and helps you calculate the current value of those shares. 8. What is the vesting schedule for the shares? This schedule shows when the shares are yours to keep. Often, you get nothing for the first year (called a one year cliff), then earn more shares over the next few years (vesting schedules typically range from two to five years). 9. What is the exercise window after leaving the company? This is how long you have to buy your shares after you leave the company. It's important so you don't miss out on buying your shares, but also slightly taboo to ask about during the interview process as no one wants to be thinking about you leaving when you're just starting. That being said, it's still a useful piece of information to understand. If you cut any of them, cut this one. One of the benefits of joining a startup is the dream of a potentially life-changing dollar amount hitting your bank account from a successful exit. Get the information you need to make an informed counteroffer. --------------------------- If you liked this list, follow me Kyle Thomas + hit the 🔔 for more. ♻ Share this post to help other startup job seekers negotiate better.