Question 1

Why do startups use stock options instead of RSUs?

Accepted Answer

Startups use stock options because: (1) Cheaper for company (options have strike price, no upfront cash), (2) Align employee/founder incentives (only valuable if company succeeds), (3) Tax advantage for employees (ISOs have preferential tax treatment), (4) Easier to explain to early employees. As startup gets funded, sometimes RSUs are added for senior hires.

Question 2

What is a typical startup vesting schedule?

Accepted Answer

Standard: 4-year vesting with 1-year cliff. No vesting Year 1; if you leave before Month 13, you forfeit all equity. After the cliff, 25% is vested. Then equity vests monthly for Years 2-4. Some startups offer: 3-year vesting (faster), 6-month cliff (more forgiving), or cliff-less vesting (equity vests monthly from day 1). Negotiate for better terms if you can.

Question 3

How much startup equity should I ask for?

Accepted Answer

This varies by role, company stage, and salary trade-off. Early employees (1-10) might get 0.5-2%. Mid-career hires might get 0.05-0.5%. Senior hires might get 0.1-1%. However, equity dilutes with future funding rounds. A 1% grant today might be 0.3% after Series B. Negotiate based on: role importance, salary reduction (equity vs. cash), company stage, your opportunity cost.

Question 4

What is acceleration and why does it matter?

Accepted Answer

Acceleration = unvested equity vests early upon specific events. Single-trigger: equity vests upon acquisition (rare). Double-trigger: equity vests if you're fired after acquisition (common). No acceleration: you forfeit unvested equity if company is acquired and you're laid off (bad for you). Push for double-trigger acceleration — it protects you in acquisition scenarios.

Question 5

What happens to my options if the startup fails?

Accepted Answer

Your vested options may still have value if company is acquired at any valuation (even tiny). Unvested options are forfeited. Exercise vested options only if you believe in company — exercising costs cash and starts tax clock. Many startup employees hold options without exercising, betting on future liquidity. If company fails, options are worthless.

Equity Compensation for Startup Employees: Options, Vesting, Value

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