This is a good article, but a lot can happen between your option grant and an exit. I'd keep in mind that startups are generally for making founders rich, not employees, and that no matter how hard you push on equity, the chances of you getting meaningful money from your options is pretty minute. You may want to optimize your base salary instead.

That said, the most important concept in the entire article is "[i]f they won't tell you, go work somewhere else." Founders who are open with their employees up front are less likely to take advantage of them later.

This piece gives very helpful advice about the right questions to ask concerning equity when you are about to sign up with a startup as an employee. It also gives credible explanations of most of the equity-related issues at that stage.

In my experience, very few employees who get option grants will ask the right questions to understand what their equity piece really means. That is, they won't even ask about something as basic as how many shares a company has outstanding (much less about size of equity pool, liquidation preference held by the preferred classes, etc.). When they fail to get this information, they really are going into the employment with poor knowledge about what likely will wind up being the most piece of their overall compensation.

Why don't they ask? Sometimes they just don't know how it all works and proceed out of ignorance. More often, however, I think they feel intimidated about pushing a company to disclose what they think is company confidential information, especially when the company is a big-name company that is already VC-funded and the offer otherwise seems tempting.

Because of this, startups will sometimes play games in this area, arbitrarily inflating the size of the company's capitalization structure (e.g., splitting a 10M capitalization structure 3 or 4 for 1 to turn it into a 30M or 40M-share structure). This splitting lets the company make a 100K share offer to a key employee sound like a 200K share offer and hence make it appear better than competing offers from companies working from smaller capitalization structures.

It amazes me how many times employees will simply accept such offers thinking they got better deals than they would have from other companies, when in fact they may have passed up equal or better alternative offers. This is truly a case of flying blind but it happens a lot.

Since he never answers the most burning question ("how much equity should I expect?"), I'll throw out some numbers based on my experience:

If you're being hired as a C-level executive, you might expect up to 2% - 3%. If you're being hired as an engineer, expect more like 0.25% - 0.5%. I'm sure it varies quite a bit, but that's what I've seen personally and heard from friends.

Man, this article is priceless. This would have really helped to have when I was last recruiting - although I did end up finally negotiating myself to a comfortable position... took three months though.

Valuable information, concisely explained. Thank you.

I have now learnt that I have 100 shares of preferred founder's stock in my own company which has 100 shares outstanding!

This is equally as useful for potential employees at a startup as those looking to recruit. I will certainly be referring back to this one when the time comes to talent hunt!

Great article!

But what if I offer 1 share for 1% and then sell myself a billion new shares, diluting that 1% down to practically nothing? I'm sure this would be regulated, but it seems if something like this needs to be regulated then it indicates a flaw with the system. Why can't we just give out percentages, and have that percentage stay constant?