Equity Negotiation Tips for Your Next Role
From exercising options to negotiating your next package, here are some tips for what to know about startup equity.
DEAR STAGE 2: I am in the middle of a job search and know that I will have some decisions to make on equity soon - whether or not to exercise my options from my last job, and how to think about equity as part of my package for a new role. What do I need to know? ~New to equity
DEAR NEW TO EQUITY: I recently sat down with Kelly O’Halloran from QuotaPath and Peter Walker from Carta to discuss all things equity—it was a great conversation on a complex topic. (You can check out the recording here for a deeper dive!) Unlike cash compensation, equity represents an expectation of future value, which is difficult to predict—especially in startups. Private company valuations can be somewhat arbitrary, and employees often lack transparency about critical elements like the cap table, total shares, their ownership percentage, future funding needs, and potential dilution.
Despite the risks and uncertainties, equity is all about the upside—it offers the potential for big wins if the company succeeds. And let’s be honest, that’s why we’re here, right?
1. What happens if you leave a company that you have equity in? Should you exercise your options?
When leaving a company where you hold equity, you often face a decision: should you exercise your stock options? If you don’t exercise, the options typically expire and are forfeited, effectively nullifying your equity stake. You typically have 90 days post-departure to exercise, which can be a tight window, especially if you’re laid off. To decide whether to exercise, consider two key factors:
Belief in the Company’s Future: Exercising options is essentially a bet on the company’s long-term success. Ask yourself: Do I believe this company will grow and increase in value? Assess its potential by considering growth prospects, leadership, market position, and your confidence in its valuation. In reality, you’re acting like an investor and deciding if the stock will eventually be worth more than the exercise cost.
Personal Finances: Exercising options requires you to pay upfront costs (the “strike price”) and possibly taxes. Taxes depend on the difference between the stock’s current value and its strike price, which can be significant. Combine that with the fact that many private company shares are illiquid (you can’t sell them right away), and you’re facing a potentially significant financial commitment. Be honest about your financial situation and whether you can afford the risks.
2. How should you approach negotiating equity in a new role?
Start by evaluating your own risk tolerance and gathering as much information about the company as possible. You can (and should) ask questions about valuation, the number of shares outstanding, your ownership percentage, and any financial preferences granted to investors.
Here are a couple of specific tips from Kelly and Peter that stood out:
Ask the right valuation questions: Peter suggests asking, “At what price per share will common stockholders see a profit?” This can help you cut through the noise and evaluate whether the equity truly has upside potential.
Understand the company’s perspective: Have a conversation with your future manager “How do you think about the value of your equity?”. Negotiating equity isn’t just about the numbers—it’s about understanding the company’s outlook and how key decision-makers view its future, enabling you to make informed decisions. Asking how existing employees think about equity value will usually give you qualitative signals (positive or negative) that you can use in your assessment.
With those questions answered you should tailor your negotiation strategy based on your role and leverage. Senior hires often have more room to negotiate compared to junior roles. Be realistic about what you can achieve and focus on optimizing what matters most to you -- equity, salary, or other benefits. Communicate your priorities to avoid spreading your demands too broadly.
You can also consider negotiating non-monetary aspects of equity, such as a longer exercise period, giving you more time to purchase shares if you leave the company. And for senior roles, you can ask to tie additional equity grants to performance milestones, like achieving specific company goals, which aligns incentives for both you and the organization.
Until next week!