Your equity is only as good as its terms.

JOB SEARCH STRATEGY WITH EARLY.

Picture that moment you have been working toward.

After a long interview process at a startup you're excited about, you've finally landed an offer.

You’ve negotiated well, and managed to push the equity offer higher, so you sign on the dotted line.

Now fast forward a couple of years, when you decide it’s time for your next challenge.

You look into the paperwork and discover you have 90 days to buy your options in cash, before they vanish.

Depending on the strike price and the size of your grant, that can be tens of thousands of dollars you need to find almost overnight. And if you miss the window, everything you vested is gone.

Sadly, this is not some rare edge case.

The reason this happens so frequently is simply because job seekers don’t know to ask about equity terms in the negotiation stage and because it's very rare for a startup to be forthcoming about their numbers without being asked.

The size of the grant is where nearly everyone puts their energy, and understandably so, because it is the part that feels tangible.

The terms sitting underneath it are what decide whether your equity is worth anything. And at a startup, those terms are where a great deal of the value is won or lost.

But that won’t be you, because we’re about to cover all of the terms that decide whether your equity will ever be paid out.

Table of Contents

• How equity at startups differs from corporate

• The terms worth asking about before you counter

• The 90 day trap

• How this plays out in the real world

1. HOW EQUITY AT STARTUPS DIFFERS FROM CORPORATE

At a large public company, equity is fairly simple.

You are granted stock, it vests over time, and once it vests you can sell it on the open market whenever you like. For all intents and purposes, it is “as good as” cash.

A startup is a completely different animal.

At an early stage company, cash is the lifeblood of the business, so a good part of your upside is deliberately loaded into equity instead. And unlike the stock at a public company, that equity is not something you can simply sell whenever you like.

It stays locked up until the company is acquired or goes public, which might be years away, or might never happen at all.

That illiquidity is exactly why the terms attached to your equity carry so much weight, because they govern what you can do with it, and when.

It also raises a bigger question, whether the equity is a good bet in the first place. That depends heavily on the stage, traction, and your belief in the company.

Join early and you get a larger share of something far less certain; join later, and it's a smaller share of something with a clearer path. The thing to remember is that the dollar figure a company attaches to your equity, especially early on, is often more of a guess than a promise.

How startup pay really compares to a corporate salary, and how to tell whether an offer is a good one, is a whole topic of its own, and one I'll dig into in a future issue.

For now, it’s worth knowing that whatever the equity turns out to be worth, the terms are what decide whether you ever get to keep it.

Those terms come with a set of questions that simply never come up in the corporate world, and the answers are what separate equity that pays off from equity that evaporates into thin air.

So once you have an offer in front of you, the real work is knowing what to actually ask about.

2. THE TERMS WORTH ASKING ABOUT BEFORE YOU COUNTER

I've helped hundreds of people negotiate startup offers and it's unbelievably rare (like I think I've literally only seen it maybe once) for them to give you all the numbers, all the terms, and all the details you need to fully understand the equity you were granted.

They will typically do one of three things:

1. They will give you just a number of shares

2. They will give you just the dollar value of shares

3. They will give you the % of the company you're being granted (this is rare and typically only happens at the early stages)

Whichever of those you're handed, you're only seeing part of the picture. These are the questions that fill in the rest:

“How many shares does this make up? And what percentage of the company does my equity grant represent on a fully-diluted, as-converted basis OR what is the total fully diluted share count?”

These are the questions you need to ask if you're given just the number of shares or just the share value (eg. You will receive 1500 shares OR You will receive equity with a total value of $100,000).

The share count on its own is close to meaningless. Fifty thousand shares sounds fantastic right up until you find out there are two hundred million of them, at which point you own a rounding error.

The percentage is the number that actually tells you how much of the company is yours, so that is the one to hold onto.

This is especially important in the early stages of startups (Pre-Seed, Seed, Series A, Series B) because the valuation can fluctuate dramatically and the guess they're putting on the value of the equity is a sales pitch to you but as accurate and scientific as the psychic in your local strip mall.

"What's the strike price, and what's the current 409a fair market value per share?"

The strike price is what you pay to buy each share. The 409a fair market value per share is what each share is worth right now.

You want your strike price to be well below the current value, because that gap is money in your pocket once there's a liquidity event (aka you can actually sell the shares).

Say your strike is one dollar and the shares are worth four: the moment you buy, each share is worth three dollars more than you paid for it.

If your strike is four dollars and the shares are worth four, you are paying full price, and you only come out ahead if the value climbs from there.

So find out how big that gap is, if there is one at all.

The thing to remember is that when you exercise the shares, you'll be taxed on the difference between the strike price (the price you paid for the shares) and the current 409a valuation (what experts say the company's shares are worth). The bigger the difference between the strike price and the 409a fair market value per share, the bigger the tax bill. The problem is, you can't sell the shares until a liquidity event (the company goes public, the company is acquired, the company offers you to sell the shares in a secondary sale) which may not happen for years. So that tax money will need to come from somewhere other than the proceeds from selling the shares.

I'll give you an example of this in play from my time at Uber.

When I joined Uber my strike price was a little over $1 and the shares were worth something like $4. Uber offered early exercise so my plan was to exercise as I was able to pay both the exercise and tax price. When the first exercise window happened I was able to cover the exercise and tax price myself. self after year one, yea. Many others had to wait until Uber went public to exercise their shares just because then they would be able to take some of their Uber share money just to pay the tax bill.

The reason why this question is so relevant is due to the tax implications and so you can plan your taxes for when you exercise the shares at different valuations.

"How long do I have to exercise my options after I leave?"

This is the one I would look at most closely, and it's known as the post termination exercise window. For most companies, the default is 90 days.

That innocent looking little number is the one that costs people the most (see the next section where we go deeper).

"Can I exercise my options early?"

Exercising before your options have fully vested can, in the right situation, shrink your eventual tax bill, which is a genuine perk if you believe in where the company is going.

The catch is that early exercise means spending real money today on shares that could, one day, be worth nothing. It is a good lever to have available, but one you should decide to pull on not pull with someone who understands your tax situation sitting next to you.

"What happens to my unvested equity if the company gets acquired?"

If you are coming in at a senior level, this one matters.

What you want is for your vesting to accelerate on an acquisition, so a sale does not freeze the equity you have not yet earned. Few things sting quite like helping build a company all the way to the point of being bought, then realizing the deal eliminated half your grant on the way out.

If there is no acceleration, you're carrying that risk.

3. THE 90 DAY TRAP

The post termination exercise window deserves its own section, because it is the term that catches the most people out and the one almost nobody thinks to negotiate.

The 90 days is not arbitrary. Most option plans default to it because of IRS rules, which require an incentive stock option to be exercised within three months of leaving to keep its favorable tax treatment.

Leave your options unexercised past that point and they generally convert into ordinary stock options that lose the tax advantages an incentive stock option carries.

So the standard window exists for tax reasons rather than for your benefit, and the effect is that when you leave, you have roughly three months to find what can be a serious amount of cash, or you forfeit what you earned.

The encouraging part is that a number of well known companies have recognized how punishing that is and extended their windows dramatically.

Quora was the first to move, giving departing employees a full 10 years back in 2014.

Pinterest extended its window to seven years, Coinbase to seven years for employees who stay at least two, and Buffer and Asana both went to 10 years.

I have a friend who left WhatNot and was able to negotiate an indefinite window for the exercise of his vested shares.

What that means for you is straightforward. A longer exercise window is a real and established thing that companies grant, so it is a legitimate thing to ask for.

Knowing that the likes of Pinterest and Coinbase already offer it gives you the footing to raise it without feeling like you are asking for something outlandish. But be aware that smaller early-stage startups could still say no and you'll need to be considered highly valuable to the company for this to be even considered if it's not something they already offer.

4. HOW THIS PLAYS OUT IN THE REAL WORLD

I think it’s helpful to see how someone actually used this theory in effect.

A member of the Early job search accelerator recently came through a full interview process and landed an offer at a Series A startup. He celebrated for a bit (as you should!), before asking for the full offer in writing and going through it step by step with our team.

We started by running the base and equity grant against compensation data to see if it was worth pushing.

Then we looked at the terms to see if anything stood out that we could negotiate to secure his equity in the future.

The standout was the exercise window. The offer came with the usual short default which meant if he ever left, he would have a matter of weeks to find what could easily run to tens of thousands of dollars, or forfeit the equity.

He went back and countered on all of it at once: a higher base and equity grant, a longer exercise window, accelerated vesting if the company were acquired, and the option to exercise his options early.

He won most of them; a bump to his base and equity and a two year exercise window, though the company drew the line at early exercise and accelerated vesting.

This is exactly what good negotiation looks like. You put everything that matters on the table at once and accept that only some of it will land.

The terms are sitting right there in the offer. The only thing between you and a better set of them is being willing to ask and back it up with data. The worst anyone can say is no, which is exactly where you started.

JOIN THE EARLY ACCELERATOR & LAND THE JOB YOU WANT

If you're reading this thinking, "I don't want to be the one figuring all of this out on my own when there's this much money on the line," that's exactly what the Early Accelerator is built for.

When your offer comes in, we pull the comp benchmarks, go through the terms with you, and help you build a counter that gets you everything the role is worth.

And it starts long before the offer ever lands. Here are some recent member wins:

• This month, a member signed an offer that increased his cash compensation by 40%.

• Another recently landed a remote senior leadership role at a $500M startup that wasn't even hiring.

• Another went from VP to a COO role less than 90 days after joining.

These come from the playbooks, mentorship, coaching, company research, negotiation support, and community we provide. It's the best way I've found to land a role at the next generation of world changing startups, and to make sure you get everything you're worth when you do.

Learn more and apply today (click here).

At an established company, negotiating an offer mostly comes down to two numbers: your base and your equity.

At a startup, those numbers are only the start. Underneath them sits a whole layer of terms that are what separate an offer from paying the bills, to changing your life a few years from now.

That is worth an afternoon of asking slightly uncomfortable questions if you ask me.

Here is my question for you: what is the part of a startup offer you have never fully understood? Reply and tell me.

I read every response, and the ones that keep coming up are what I will pull apart in the issues ahead.

Let’s go get you that job! 🏆

Kyle

Founder of Early

P.S. Whenever you’re ready, here are the three more ways I can help you this week:

1. Apply to join the Early Accelerator - Get coached directly by me, surrounded by a community of hundreds of badass startup operators. This is everything I learned when landing my role as Uber employee 250 and transitioning post-layoff to a Series A with top VC investors. We give you everything you need to make your startup job search a success. Structure, accountability, strategies, investor-grade company data, target company lists, negotiation assistance, everything to help you win.

2. Download the Clarity Playbook (FREE) - the exact process I walk every Accelerator member through to lock in their Role, Impact, and Company before they ever write a post or send a resume. Start here!

3. Use the Proof of Work Finder (FREE) - this prompt finds the highest-leverage Proof of Work you can create for a target startup, builds it with you, and pressure-tests it so it doesn’t read as generic. Send your Proof of Work to the team and create a huge gap between you and the second-place candidate.