What nobody tells you
- Startup equity is illiquid until an exit (acquisition or IPO) or a rare secondary sale — 'worth $200k' on paper can be worth zero if the company fails, which most do.
- Leaving a job before your equity vests, or shortly after an early exercise window closes, can mean forfeiting most or all of it.
- Options require you to pay a strike price to actually own the shares, and that purchase can trigger a tax bill even before you can sell anything.
The basics
- RSUs (restricted stock units) convert to actual shares as they vest — generally simpler and lower-risk than options, common at public or late-stage companies.
- Stock options give you the right to buy shares at a fixed strike price later — valuable only if the company's value rises above that price.
- Vesting is the schedule over which you earn the right to your equity, commonly four years with a one-year cliff (nothing vests until year one, then it starts).
The framework
Type, vesting, valuation stage
Three questions determine what an equity grant is actually worth to you, beyond the headline number in an offer letter.
- 01
Type: RSU or option — this changes when you owe tax and what risk you're taking on.
- 02
Vesting: what's the schedule, is there a cliff, and what happens if you leave early?
- 03
Stage: public company stock has a known price; private company equity value is an estimate that could be very wrong.
The playbook
Words they use without explaining
- Vesting cliff
- A waiting period (often one year) before any equity vests at all.
- Strike price
- The fixed price you pay per share to exercise a stock option.
- 409A valuation
- An independent estimate of a private company's share value, used to set the strike price.
- Liquidity event
- An acquisition, IPO, or secondary sale that lets you actually convert equity to cash.
The mistakes — what people get wrong
- Treating a headline equity number as guaranteed net worth — it's unvested, untaxed, and potentially worthless until proven otherwise.
- Exercising a large option grant without understanding the tax bill it can trigger, sometimes before you have any cash from a sale to pay it.
- Not reading the post-termination exercise window — many plans give only 90 days after leaving to exercise vested options before they expire.
Ask yourself
- Do I actually understand whether I have RSUs or options, and what that means for tax?
- What's the vesting schedule, and what happens to unvested equity if I leave?
- Am I treating a private company valuation as more certain than it actually is?
Go deeper
- Tool
An equity offer calculator
Several free tools model vesting and tax scenarios for RSUs and options.
- Professional
A tax advisor familiar with equity compensation
Worth the fee before any large exercise decision.
- Book
Consider Your Options — Kaye Thomas
A detailed guide to stock option mechanics and tax.
General educational information, not legal, tax, medical, or financial advice. Rules vary by country and change over time — verify with a qualified professional before acting.