How to Evaluate a Startup Equity Offer: What Engineers Should Know (2026)
Startup equity is one of the most misunderstood parts of a job offer. The headline number ("you're getting 0.5% of the company!") tells you almost nothing. What actually matters is the structure beneath it.
This guide is for engineers evaluating startup equity offers — specifically what questions to ask, what the answers mean, and what red flags to watch for.
The Basic Math (Start Here)
Your equity is worth: (your ownership %) × (exit value) − (liquidation preference ahead of you)
All three variables matter. Founders sometimes present only the first one.
Ownership percentage: What percentage of the company do you own, post-issuance? Always ask for the post-dilution number — not pre-dilution, which ignores all existing options.
Exit value: How much might the company be worth when you can cash out? This is the bet you're making. At seed: the exit could be $50M or $5B. At Series C: the range is narrower, but the expected value is usually lower because much of the upside has been captured.
Liquidation preferences: When the company is acquired, investors get paid first — before common shareholders (which is what your stock options are). A 1x liquidation preference means the investors get their investment back before you see anything. 2x means they get 2x their investment. In a modest acquisition ($100M for a company that raised $90M from investors with 1.5x liquidation preference), you might get nothing despite your 0.5% grant.
The Five Questions to Ask Before Signing
1. What is the fully diluted share count?
Your grant is worth (your share count) / (total shares outstanding). Companies sometimes present your grant as a raw share number without context. "You're getting 50,000 shares" means nothing without knowing what the total cap table is. Ask for the total outstanding shares and calculate your percentage yourself.
2. What is the current valuation, and what round is this?
At a $20M valuation (Series A), 0.5% is worth $100K. At $200M valuation (Series B), 0.1% is worth $200K. More importantly: what was the price per share at the last round, and what are you paying for your options (the exercise price)?
3. What is the liquidation preference structure?
Ask how much has been raised, from whom, and at what preference multiple. This isn't just a number game — it's the difference between your equity being meaningful and not. Good companies disclose this freely. Companies that resist this question are a yellow flag.
4. What does the vesting schedule look like?
Standard is 4-year vest with 1-year cliff (25% vests at 1 year; the rest monthly over years 2–4). Non-standard terms to watch: longer vesting periods (5–6 years), back-loaded vesting (more than standard in years 3–4), or acceleration provisions that don't include double-trigger.
5. What are the exercise window and post-termination terms?
Standard options expire 90 days after you leave. If you can't afford to exercise them (which requires paying the strike price plus taxes), you lose them. Some companies have extended exercise windows (3–10 years post-termination) — this is a meaningful benefit, especially for companies that take a long time to exit. Ask directly.
Making Sense of the Number
Here's a simple model. Say you're offered 0.3% at a Series A startup (current valuation $40M):
| Scenario | Company Value at Exit | Your 0.3% | After 1x Preference on $15M Raised |
|---|
| Modest success | $150M | $450K | ~$405K (investors take $15M first) |
| Good outcome | $500M | $1.5M | ~$1.47M |
| Great outcome | $1.5B | $4.5M | ~$4.49M |
| Below preference | $10M | $30K | $0 (investors take all) |
The probability-weighted expected value of your 0.3% grant at Series A might realistically be $200K–$400K. Compare this to: a $30K–$50K cash comp premium at a big company over 4 years. You're making a bet — know what the bet is.
The Structure That Matters More Than the Number
ISO vs. NSO: ISOs (Incentive Stock Options) have tax advantages for most employees. NSOs (Non-Qualified Stock Options) are taxed as ordinary income when exercised. Ask which you're getting.
83(b) election: If you're receiving restricted stock (not options), filing an 83(b) election within 30 days of grant can save significant taxes. This is time-sensitive — your law firm or a service like Secfi can help.
SAFEs at seed: If the company raised on SAFEs (Simple Agreements for Future Equity), understand how they convert at the next priced round — this affects your actual ownership percentage.
Red Flags
"We can't share the cap table." Companies sometimes hesitate to share full cap tables, but they should be able to tell you the total diluted share count, the amount raised, and the liquidation preference structure. If they can't answer these questions in an offer negotiation, that's a red flag.
Grants quoted as share counts without context. "50,000 shares" means nothing. Any company that presents equity this way instead of as a percentage is either unsophisticated or deliberately obscuring something.
Very high liquidation preferences. A company that raised $50M on 2x participating liquidation preferences means investors get $100M before you see anything. At a $100M acquisition, your equity is worth zero. This isn't hypothetical — it's the structure at a meaningful number of companies.
Long vesting with no acceleration. 5-year vesting with no double-trigger acceleration means you need to stay 5 years to get fully vested AND you might not get acceleration even if the company is acquired. Read the vesting terms carefully.
Frequently Asked Questions
Q: Is 0.1% at a Series B startup worth more or less than 0.5% at seed?
A: Depends on the exit outcome and the preference structure. 0.5% at seed is typically on a smaller base (lower valuation) with more risk. 0.1% at Series B is on a larger base (higher valuation) with less risk but more preference in front of you. Model both scenarios across exit values.
Q: Should I negotiate equity or salary?
A: Negotiate both. Cash and equity serve different purposes — cash feeds present needs, equity is a bet on the future. If you're willing to take more risk, negotiate for more equity in exchange for lower cash (some companies will do this). If you have high near-term cash needs, prioritize base.
Q: What's a good equity grant at each funding stage?
A: Rough benchmarks for senior engineers: Seed = 0.3–1.0%; Series A = 0.15–0.5%; Series B = 0.05–0.2%; Series C+ = 0.01–0.1%. These are ranges, not targets — the actual value matters more than the percentage, because the underlying valuation changes so much across stages.
Q: Is there any way to know if the equity will be worth anything?
A: No — it's a bet. The best signals: amount raised vs. current valuation (preference overhang), quality of investors, revenue trajectory if available, competitive position, founder quality, and your own judgment about whether the company is solving a real problem in a big market.
Q: What happens to my equity if I leave?
A: Vested options typically need to be exercised within 90 days of leaving (or longer if the company has an extended exercise window). Unvested options are forfeited. You'll owe taxes on exercise depending on option type and current stock value. If the company hasn't exited, you may hold illiquid options for years.
For the latest engineering compensation benchmarks, levels.fyi and The Pragmatic Engineer are the most cited sources.
Related: How to Negotiate a Software Engineer Offer: A Founder's Playbook ·
Staff Engineer Salary Negotiation: A Founder's Counter-Offer Guide (2026)
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