How to value the equity in a job offer, properly

“40,000 options” is not an offer you can evaluate. Here is how to turn it into a number you can compare against cash.

Step 1 — Convert to a percentage

Ask for the fully diluted share count. Without it you have nothing.

40,000 ÷ 11,600,000 = 0.345%

If a company will not tell you the denominator, that is information too. It is a standard question and any competent founder answers it in a sentence.

Step 2 — Apply future dilution

Your 0.345% is today’s number. Future rounds dilute you exactly as they dilute the founders (part 7).

If the company raises two more rounds diluting 25% and 18%:

0.345% × 0.75 × 0.82 = 0.212%

That is the realistic figure to carry into the maths — roughly 40% smaller than the one in the offer email.

Step 3 — Multiply by an exit value you actually believe

Exit value	Your 0.212%	Less strike cost (40,000 × $0.25)	Pre-tax
$0 (most likely single outcome)	$0	—	$0
$50,000,000	$106,000	−$10,000	$96,000
$150,000,000	$318,000	−$10,000	$308,000
$500,000,000	$1,060,000	−$10,000	$1,050,000

Spread across the four years it takes to vest, the $150M case is about $77,000 a year pre-tax — real money, and a long way from “life-changing” unless the top row happens.

Do not let anyone show you only the right-hand column. And note the first row is not pessimism; it is the single most probable outcome for any given startup.

Step 4 — Subtract the preference stack

Preferences are paid before common (part 8). If the company has raised $40,000,000 with 1x preferences and sells for $50,000,000:

$50,000,000 − $40,000,000 = $10,000,000 to common
your 0.212%               = $21,200      (not $106,000)

Always ask how much has been raised in total. A company that has raised $200M is a very different equity proposition from one that has raised $8M at the same headline valuation, and this is the single most under-asked question in offer negotiations.

Step 5 — Price the mechanics

Exercise cost. 40,000 × $0.25 = $10,000 in cash, at some point, to own anything.

The exercise window. 90 days after leaving versus ten years is enormous (part 5). A ten-year window on a smaller grant is often worth more than a bigger grant on a 90-day clock.

ISO or NSO. Determines whether exercising creates immediate ordinary income or AMT exposure.

Vesting shape. Four-year even with a one-year cliff is standard; a back-loaded 10/20/30/40 schedule is materially worse and looks identical in the headline.

The six questions

1. How many shares, out of what fully diluted total?
2. What is the strike price, and what is the date of the 409A behind it?
3. ISOs or NSOs?
4. What is the post-termination exercise window?
5. How much has been raised in total, and what is the preference stack?
6. Is there acceleration on a change of control — single or double trigger?

Every one has a specific, look-up-able answer. Ask all six in one message; it reads as competence, not suspicion.

How to actually decide

Treat equity as a lottery ticket with good odds relative to its price — not as deferred salary. Three practical rules:

The salary has to work on its own. If you need the equity to pay rent, the offer is underpaying you with a probability-weighted story.

Compare like with like. Convert every offer to percentage-after-expected-dilution, and pay attention to how much each company has raised.

Value the terms, not just the number. A ten-year exercise window, a clean preference stack and an honest cap table conversation are each worth more than 20% more options from a company that will not answer question one.

Next

Part 15 closes the series with the mistakes that show up most often in real cap tables, and a self-audit you can run in an afternoon.