How to value the equity in a job offer

Two offers land: BigCo at $180,000 base plus $200,000 of RSUs over four years, and a Series B startup at $150,000 base plus 40,000 options 'worth $300,000 at our last valuation.' Comparing these as if the equity numbers were equally real is the most expensive mistake in offer evaluation. Public-company RSUs are close to cash. Startup options are lottery tickets with better-than-lottery odds — but they need to be priced like the probabilistic instruments they are.

First, identify what you're actually being offered

• Public-company RSUs: shares delivered on a vesting schedule, sellable immediately at a knowable price. Discount them only for stock volatility. Treat as ~90% of face value.
• Private-company RSUs (late-stage startups): real shares, but usually unsellable until an IPO or acquisition, and often double-trigger (no liquidity event, no value). Discount meaningfully.
• Stock options (ISOs/NSOs): the right to BUY shares at a strike price. Value = future share price minus strike, times shares — minus the cash and tax friction of exercising. The earlier the company, the deeper the discount.
• Profit interests, phantom stock, RSAs: rarer instruments — if you're offered these, the details matter enough to pay a professional for an hour.

The questions that price startup equity

1. What percentage of the company do my shares represent, fully diluted? 40,000 options means nothing without the denominator. Companies that refuse to share this are telling you something.
2. What was the strike price and the latest 409A valuation? Your paper gain today is (409A minus strike) — often small.
3. What preference stack sits above me? Investors with liquidation preferences get paid first; in modest exits, preferred stock can absorb everything.
4. What happens if I leave? The standard 90-day exercise window forces you to pay strike price plus taxes in cash or forfeit everything. Some companies offer 5–10 year windows — a hugely valuable term.
5. Expect future dilution: each funding round typically dilutes existing holders 15–25%. Two more rounds before exit can cut your percentage nearly in half.

Taxes: where good equity outcomes go to die

RSUs are taxed as ordinary income as they vest — straightforward, withheld like salary. Options are a minefield: exercising ISOs can trigger Alternative Minimum Tax on paper gains you haven't realized in cash; exercising NSOs triggers ordinary income tax immediately on the spread. People have genuinely owed six-figure tax bills on shares that later became worthless. If you're accumulating meaningful option value, the few hundred dollars for a tax advisor who specializes in equity comp is some of the best money you'll ever spend — ideally before you exercise, not after.

A discount cheat sheet by company stage

When you need a fast, defensible haircut for comparing offers, stage is the strongest single signal. These multipliers are estimates — a rough consensus of how experienced operators discount paper equity value — and they assume you apply them to the honest paper value after dilution, not the recruiter's headline. The pattern to internalize: every step earlier in company life roughly halves the expected value per paper dollar, while widening the (real but improbable) right tail.

Two refinements sharpen the estimate. First, adjust for the specific company's fundamentals if you can see them — real revenue growth and a reasonable last-round valuation move a Series B toward the top of its band; a 2021-vintage valuation the company hasn't grown into moves it toward the bottom. Second, remember the discount applies to expected value, not possible value. If you're joining a startup, the honest posture is to negotiate base salary as if the equity were worth its discounted number, while privately hoping it's worth the paper one. People who invert that — accepting low salary because the paper number feels real — are making a concentrated angel investment with four years of their labor, usually without noticing they've done it.

The bottom line

Equity is compensation and deserves the same rigor as salary: identify the instrument, get the fully diluted percentage, discount for probability, dilution, and preferences, and understand the tax path before you sign. Public RSUs are ~90-cent dollars; early startup options are often 15-cent dollars with a long right tail. Both can be great — as long as you price them honestly and never confuse the paper number with the expected one.

The questions in this article double as a diligence test of the company itself: employers who answer the fully-diluted and preference-stack questions plainly tend to run everything else transparently too, while evasiveness about the denominator is data worth exactly as much as the answer would have been.