Evaluate startup equity by understanding what you receive, what it costs to turn it into shares, when you earn it and what happens if you leave or the company is sold. The headline percentage is only one part of the offer.

Ask for the grant terms and the company’s explanation of them before deciding. Keep cash compensation, potential equity outcomes and the cost of exercising separate. That gives you a clearer basis for comparing roles without treating a future sale as money you can spend today.

The salary guide helps you compare the cash package. Our guide to comparing compensation across London, New York and San Francisco puts the different elements alongside one another. Use the questions below to understand the equity itself.

Establish exactly what you are being offered

An option is a right to buy shares on specified terms. It is different from already owning those shares. An offer might instead include restricted shares, restricted stock units or another arrangement, so begin with the instrument’s name and documents. [Source 1]

Ask for the number of options or shares, the share class and the proposed grant date. If the offer is subject to board approval, establish when approval is expected and which terms are already agreed. Keep a written record of the answer.

Then ask what percentage the grant represents on a fully diluted basis and what the calculation includes. A count without the denominator cannot tell you your ownership percentage. A percentage without a date or definition can also be misleading.

Confirm whether the calculation allows for the existing option pool and securities that may convert into shares. If the company is raising money, ask whether the percentage is before or after that financing and any planned pool increase.

Understand the strike price and exercise cost

The strike price is the amount you pay per share when you exercise an option. Multiply it by the number of options you plan to exercise to understand the purchase cost, then consider tax separately.

For a simple arithmetic example, 10,000 options at a £1 strike price require £10,000 to exercise in full before any tax or other costs. That calculation does not establish what the shares can be sold for.

Ask how the strike price was determined and which valuation it relates to. An investor’s preferred-share price and the value used for employee common-share options can describe different rights. Do not multiply your percentage by the last funding headline and assume that is your cash entitlement. [Source 2]

The practical questions are whether you could afford exercise when required, whether a sale would be possible and what happens if the company’s prospects change after you have spent the money.

Read the vesting schedule as a calendar

Vesting describes when you earn rights under the grant. A cliff is an initial period before the first portion vests. The grant documents should state the start date, schedule, cliff and any conditions. [Source 3]

Write the important dates down. When does vesting begin? What is vested if you leave shortly before or after the cliff? Does it continue monthly, quarterly or according to milestones? How are leave periods and changes in working arrangements handled?

Treat any acceleration provision as a specific term to read, not an assumption. Ask what event triggers it and whether more than one condition must be met. A sale alone may not be sufficient.

Also separate your initial grant from future refresh grants. Ask how the company reviews equity as responsibilities change, but do not count a possible future award as part of the offer you have today.

Ask what happens when employment ends

Leaving can create a decision about vested options even when you cannot sell the resulting shares. Ask for the post-employment exercise window, the final expiry date and the treatment of unvested options.

Read the definitions of different departure circumstances and any repurchase or forfeiture provisions. Ask the company to explain what the terms mean for an ordinary resignation, redundancy and dismissal. Have unresolved wording checked before you rely on a verbal summary.

The contractual exercise window and a tax qualification period are not necessarily the same thing. For US ISOs, continued qualification is subject to statutory rules, including rules connected to employment. Establish what happens to the tax treatment if you exercise after leaving. [Source 4]

For UK Enterprise Management Incentives (EMI) options, leaving employment can be a disqualifying event. The timing and circumstances of exercise can affect the relief available. Ask the company to identify the applicable rules for your grant rather than relying on a general statement that EMI means tax-free. [Source 6]

Keep US and UK tax structures separate

US incentive stock options (ISOs) and non-qualified stock options (NSOs) have different federal tax treatment. The IRS states that statutory options generally do not create gross income at grant or exercise, but exercising an ISO may create alternative minimum tax exposure. Sale treatment depends on meeting the relevant conditions. [Source 1]

For nonstatutory options without a readily determinable fair market value, the IRS generally describes income at exercise based on the shares’ value less the amount paid. A later sale has its own tax consequences. [Source 1]

UK EMI is a tax-advantaged option arrangement with company, employee and option conditions. Whether relief applies depends on the grant and the circumstances. [Sources 5 and 6]

Ask which scheme applies to you, where you are expected to be tax resident and what happens if you move country. Put the documents, dates and personal circumstances in front of a qualified adviser before making an exercise decision.

Model dilution and the order of payment

Dilution means your percentage can fall when the company issues more equity. That can accompany growth in the business, but the effect on your outcome depends on the terms and eventual value. Index Ventures’ OptionPlan makes financing and dilution assumptions explicit rather than treating today’s ownership as fixed. [Source 7]

Ask what further funding the company expects to need and whether a pool increase is planned. You do not need a prediction of the exact next valuation. You need enough information to understand how sensitive the attractive scenario is to future assumptions.

Liquidation preferences can give preferred shareholders priority in a sale or other relevant event. Participation rights and other terms can also change the amount left for common shareholders. [Source 2]

Ask the company to explain a lower, middle and higher sale scenario using its actual capital structure. Keep the exercise cost, tax assumptions, vesting and dilution visible. Include the possibility that no sale becomes available while you hold the shares.

Compare the whole decision, not one large number

An equity offer should support a decision about the role and your finances. First decide whether the salary and other cash terms work for your circumstances. Then consider the potential equity outcome, the cost of taking part and the uncertainty involved.

Compare offers on the same basis: the same period of service, clearly stated financing assumptions and a consistent treatment of exercise cost. A larger grant can still be less suitable if the terms require a cash commitment you cannot comfortably make.

Ask what the company must achieve next and how your work contributes to that milestone. The guide to choosing your next startup role helps connect the package with the product, team and responsibilities.

Keep questions factual and grouped. A single written list is easier for a founder or finance lead to answer properly than a sequence of disconnected requests.

Leave the conversation with a usable summary

A useful summary records the terms and the remaining questions in one place. Before accepting, you should be able to complete these points:

  • Instrument, share class, option count and proposed grant date.
  • Ownership percentage, denominator and calculation date.
  • Strike price and the cash cost of exercise.
  • Vesting start, cliff, schedule and any acceleration conditions.
  • What happens on departure, including exercise and expiry deadlines.
  • Relevant tax scheme and any cross-border questions.
  • How dilution and preferences affect possible outcomes.
  • What is agreed now and what still needs approval.

If a material answer is missing, ask who can provide it and when. Understanding the terms is part of making a responsible decision about joining the company.

Start a conversation.

Legal and tax points are summaries; take professional advice.

Sources

  1. IRS: Topic 427, Stock options. Statutory and nonstatutory option treatment. Checked 31 October 2026.
  2. Carta: Liquidation preferences. Preferred and common shares, payment priority and participation. Checked 31 October 2026.
  3. Carta: Vesting, schedules, cliffs and acceleration. Grant terms and timing. Checked 31 October 2026.
  4. IRS: Publication 525. Incentive stock option conditions and employment-related rules. Checked 31 October 2026.
  5. GOV.UK: Enterprise Management Incentives. EMI conditions and exercise treatment. Checked 31 October 2026.
  6. HMRC: Employment related securities for employers. EMI scheme guidance and disqualifying events. Checked 31 October 2026.
  7. Index Ventures: OptionPlan. An established modelling tool with explicit financing and dilution assumptions. Checked 31 October 2026.