Reading an offer

Eli has two job offers. Offer A gives 40,000 stock options. Offer B gives 10,000 stock options. Which offer gives more equity? You cannot know yet. Offer A can be 0.1% of a company with 40 million shares. Offer B can be 0.25% of a company with 4 million shares. This lesson shows how to read an offer, and what to ask before you sign.

A number of options means nothing alone

A company can divide its ownership into a small or a very large number of shares. Thus the number of options in an offer tells you nothing until you know the total. The total to use is the fully diluted shares. This total counts all issued shares, all granted options, the unused option pool, and other items that can become shares.

Your part of the company = your options ÷ fully diluted shares

Predict first

An offer gives 40,000 options. The company has 18,382,353 fully diluted shares. What part of the company is that?

Type a guess before you continue. A guess first, even a wrong one, makes the answer easier to remember.

The company knows its fully diluted share count. If the offer letter does not give it, ask for it. Without it, you cannot value the offer.

The questions to ask

Before you accept, ask for the numbers that an offer letter often leaves out:

How many fully diluted shares does the company have?
What is the strike price, and what was the date of the latest 409A valuation?
What price did investors pay for each preferred share in the last round?
How much money did investors put in, and what are their liquidation preferences?
What is the vesting schedule, and is there a cliff?
How long can I exercise my vested options after I leave?
Can I exercise early, before the options vest?
Does the company give refresh grants?

Each answer changes the value of the grant. The rest of this lesson uses the first four answers. The lessons on exercise and taxes and sizing grants use the others.

The paper value

The simple way to value a grant uses the preferred price, the price that investors paid in the last round. Subtract your strike price from the preferred price, and multiply the result by your options. For the offer in the prediction above, the strike price is $0.40, and the last preferred price is $1.088:

Paper value = (preferred price − strike price) × options
            = ($1.088          − $0.40)       × 40,000
            = $27,520

This result is a paper value: no sale gives you this money today. It is usually too high. Investors bought preferred stock, and your options are on common stock. Common stock does not get the preferred price in every sale. Also, the company can fail, and most startups do not end in a large sale.

Compare the 409A price. On the grant date, your strike price equals the 409A price, so the spread at the 409A price is $0. For tax purposes, a new option has no gain yet. All of its value depends on the future growth of the common stock.

From paper value to payout

Three things stand between the paper value and the money that you get in a sale.

Later rounds dilute you

Each later round sells a part of the company to new investors. Your number of options stays the same, but the total number of shares increases. This decrease in your part is dilution. If two more rounds each sell 20%, your 0.218% becomes 0.218% × 0.8 × 0.8 = 0.14%. The lesson on dilution across rounds shows how dilution compounds.

Investors take their money back first

Investors in priced rounds usually get a liquidation preference. In Q2 2026, Cooley found a 1x preference in 95.8% of deals and non-participating preferred in 96.4%. With these terms, investors take the larger of two amounts: their money back, or their part of the sale as common stock.

In a large sale, investors take their part as common, and each share gets the same price. In a small sale, investors take their money back first, and common holders share what is left. The lesson on liquidation preferences gives the details.

You pay the strike price

Each option pays only the value of one common share minus the strike price. If the value of a common share in the sale is less than your strike price, your options pay nothing.

Your payout = options × (value of one common share − strike price)

Calculator

Read a startup option offer

Enter the numbers from the offer and the answers the company gives to your questions. See what the grant pays in a sale.

Options in the offer

Company's fully diluted shares

Ask the company. Without it, a number of options tells you nothing.

Strike price

Preferred price (last round)

The price investors paid for each share.

Investor preferences

Usually the money investors put in. They can take it back first in a sale.

Investors' part of the company

More rounds before the sale, 20% each

Your part: 0.2%; 40,000 ÷ 20,000,000
Cost to exercise all: $32,000; 40,000 × $0.80
Paper value: $68,000; At the $2.50 preferred price
Break-even price: $23.8M; A sale at or below it pays your options $0

What the grant pays in a sale

Your payout before tax at five sale prices
Sale price	Your payout	Each common share	Investors take
$25M (0.5×)	$4,364	$0.9091	$15M first
$50M (1×)	$68,000	$2.50	Their 45%
$100M (2×)	$168,000	$5.00	Their 45%
$250M (5×)	$468,000	$12.50	Their 45%
$500M (10×)	$968,000	$25.00	Their 45%

1× is $50M: the preferred price × all 20,000,000 shares.

The offer gives you 0.2% of the company. To buy all the shares, you pay $32,000. At the preferred price, the grant looks worth $68,000, but common stock does not get the preferred price in every sale.

In a sale for $50M, the value at the last round price, your options pay $68,000 before tax, 100% of the paper value. They pay nothing unless the company sells for more than $23.8M. At that price, the investors take their $15M first, and the rest gives each common share only your $0.80 strike price.

Try these changes in the calculator:

Set more rounds before the sale, and look at the payout at each sale price.
Increase the investor preferences, and look at the payout in the smallest sale.
Set the strike price equal to the preferred price. The paper value falls to $0, but a large sale still pays.

A full example

Eli’s real offer is the default offer in the calculator above: 40,000 options at a $0.80 strike price. The company has 20,000,000 fully diluted shares, and investors paid $2.50 a share in the last round. Investors own 45% and have $15M of 1x non-participating preferences.

Worked example · step 1 of 5

What Eli's options pay in a $25M sale

1
Find the ownership and the paper value
Divide Eli's options by all the shares. Then use the preferred price for the paper value.
```
Ownership   = 40,000 ÷ 20,000,000       = 0.2%
Paper value = ($2.50 − $0.80) × 40,000 = $68,000
```

The paper value was $68,000. In a $25M sale, the grant pays $4,364 before tax, approximately 6% of the paper value. Now do the same steps for a larger sale.

Work it out

Same offer, no more rounds. The company sells for $100M. What do Eli's options pay?

Salary against equity

A startup often offers a lower salary and more equity. To compare two offers, find the sale price at which the extra equity pays back the salary that you give up.

Work it out

Offer B pays $30,000 a year less than Offer A for 4 years. It gives 0.3% more of the company, and later rounds dilute that to 0.18% by the sale. At what sale price does the extra equity pay back the lost salary? Ignore the strike price, preferences, and tax.

Other terms that change the value

The share count and the prices are not the whole offer. These terms also change what the grant is worth to you:

Vesting. A standard grant vests over 4 years with a 1-year cliff. If you leave early, you keep only the vested part.
The exercise window. Most grants give you 90 days after you leave to exercise. A longer window lets you wait for a sale before you pay.
Early exercise. Some plans let you buy the shares before they vest. This can decrease your tax, but you put cash at risk.
Acceleration. Some grants vest early if a buyer purchases the company and then ends your job. The lesson on vesting and cliffs explains single and double triggers.
Refresh grants. Some companies add new grants as your first grant vests. Ask about the policy.

Two offers with the same part of the company can have very different values because of these terms. Compare them line by line, not only by the number of options.

Quiz · question 1 of 5

Test what you learned

An offer gives 50,000 options. What must you know to find your part of the company?

In this lesson you will learn