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Startup Equity & Offer Negotiation Guide
A practical playbook for negotiating comp at startups: equity types, taxes, valuation, liquidity, protections, and scripts that work.
Startups vs Big Tech: Why Your Strategy Changes
Big mistake: Negotiating startups like Big Tech
On paper both show base + bonus + equity. Under the hood, risk, liquidity, and levers are completely different. Your approach must change.
Comp Structure
- Less cash, more equity (especially early)
- At A/B, equity often given as a % of company
- Harder to compare across offers (valuation uncertain)
- High variance: zero or life-changing
- Predictable base + bonus + liquid RSUs
- Sell multiple times per year; easier diversification
- Risk-adjusted returns often stronger
Deal Flexibility & Growth
- Title, scope, level, remote, added terms
- Founder/CFO directly decide; culture/mission matter
- More creative structures: milestones, revenue share
- Fluid titles, rapid scope; easier up-levels
- Multiple hats, accelerated responsibility
- Vs structured ladders and slower, predictable progression
Equity Types Deep Dive
Equity instrument depends on stage
Early-stage favors stock options; late-stage/private-public favors RSUs. Understand tax, liquidity, and negotiation levers for each.
ISOs (Incentive Stock Options)
- Potentially best tax outcomes if you exercise and hold (2 years from grant, 1 year from exercise)
- $100K vesting/year ISO limit (excess becomes NSOs)
- 90-day post-termination exercise unless extended
- AMT considerations at exercise on the spread
NSOs (Non-Qualified Stock Options)
- Ordinary income tax on spread at exercise
- More flexible: longer exercise windows possible
- Useful later-stage or above ISO limits
RSUs (Restricted Stock Units)
- Actual shares delivered at vest; no exercise cost
- Private companies often use double-trigger (time + liquidity)
- Public companies use single-trigger (time only)
RSAs (Restricted Stock Awards)
- Actual shares at grant with restrictions; often early-stage at low FMV
- 83(b) election within 30 days can lock in low basis; future gains as capital gains
- If repurchase rights exist pre-vest, unvested shares may be bought back at cost if you leave
Single vs Double Trigger (RSUs)
Single-trigger: vests by time (public). Double-trigger: requires liquidity event to avoid taxation on illiquid stock.
Taxes, AMT, 83(b), and QSBS
Tax timing often matters more than grant size
Smart exercise and sale timing can change your after-tax outcome by 6-7 figures.
83(b) & Early Exercise
- Early exercise unvested options; file 83(b) within 30 days
- Starts long-term clock; avoids ordinary income at vesting
- Risk: cash outlay on illiquid shares; repurchase if you leave
AMT on ISOs
- AMT includes the spread at exercise; plan partial exercises across years
- Balance AMT exposure vs. getting capital gains treatment
QSBS (US §1202)
- 0% federal tax on the greater of $10M or 10× basis after 5 years
- Company must be a domestic C-Corp with < $50M assets at issuance
- Exercise early enough to start the 5-year clock while qualifying
Practical sequencing
- Seed-A: prioritize QSBS eligibility and 83(b)
- B-C: stage ISO exercises to manage AMT
- D+: plan for RSU tax at liquidity; consider secondaries
Valuation, Dilution, Preferences, and Liquidity
Strike Price, 409A vs Preferred
- Strike = 409A FMV of common; usually discounted 20-80% vs preferred
- A tiny discount is a red flag (stale or aggressive 409A)
Dilution Math
Ownership math
Your % = Your Shares / Fully Diluted. Expect ~20-30% dilution per round; 1.0% today → ~0.5% after a few rounds.
Exit Waterfall & Preferences
- Investors recover preferences first (e.g., 1× on $100M = first $100M)
- Participating preferred can double-dip (preference + pro-rata)
- Common/share value depends heavily on stack details
Secondary Liquidity Options
- Company-organized tenders; policy-driven percentages
- Investor-led secondaries; need company approval and rights
- Tag-along/ROFR terms govern who can sell and when
Protections to verify
- Extended exercise windows (vs 90 days)
- Double-trigger acceleration at change of control
- Cashless/net exercise availability
- Secondary participation/tag-along rights
Negotiation Scripts That Work for Startups
Standard Responses (80% of cases)
Recruiter: What are your compensation expectations?
You: I find it doesn’t make sense to discuss it so early. I’m focused on interviews and fit; I’m confident we can land on something we’re both happy with at the end.
Recruiter: As a startup we won’t be competing with FAANG.
You: What’s your typical structure between cash and equity for this level?
Advanced Techniques
Recruiter: We need expectations upfront before proceeding.
You: It sounds like you’ve seen misaligned expectations before?
You: I’m excited about the role. I am also expecting comp from [peer company]. If we could reach $[target annual] with [equity/terms], I’d be eager to sign with you today.
“Best and Final”
Often not final. Gauge tone and progress. If blocked on recurring comp, ask for a one-time signing bonus to close today.
What to Ask at Each Stage
- Equity type? Early exercise? 83(b) allowed?
- Exercise window on exit; 90 days vs extended?
- Fully diluted shares outstanding (% ownership)
- Latest 409A? ISO/NSO mix? QSBS eligibility?
- Early exercise and 83(b) logistics
- Extended exercise if you leave
- Exercise cost vs cash; stage ISO exercises for AMT
- Secondary policy; tag-along rights
- Acceleration terms at change of control
- RSUs: double-trigger? tax withholding at liquidity
- Lock-up windows; sell-to-cover automation
- Refresh cadence and benchmarks
Decision Tree (Simplified)
- Options at low FMV? → Consider early exercise + 83(b)
- High ISO spread? → Stagger exercises to manage AMT
- Late-stage RSUs? → Plan liquidity/tax at vest or event
Negotiable Terms & Protections
- Yes: # shares/%, early exercise, 5–10y exercise window
- Maybe: Acceleration, milestones, revenue share
- No: Strike price (409A-driven)
- Yes: RSU size, refresh cadence, double-trigger
- Maybe: Secondary participation
- Rare: Vesting schedule changes
- Yes: Grant size, refresh timeline, acceleration
- Maybe: Lock-up exceptions for critical hires
When Info Is Withheld
- Must have to evaluate: fully diluted shares, 409A/share value, key preferences
- Offer NDA, review on a call, or limited disclosure to proceed
- Repeated deflection is a red flag; decide your line
Key Takeaways
- Model diluted ownership and exercise costs
- Verify 409A, preferences, and secondary policy
- Negotiate exercise window, acceleration, refresh
- Plan taxes: 83(b), AMT, QSBS
- + equity %, extended exercise, early exercise
- Milestone bonuses or revenue share
- Secondary participation rights
- Signing bonus to close gaps
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