Evaluating Employee Equity

Evaluating Employee Equity

December 21, 2023 by investor

Evaluating Employee Equity

Employees joining a startup will often receive equity as part of the compensation package.

Investors know that only one out of ten startups will generate an outsized return.

The rest turn in a modest return or fail outright.

Employees should consider these factors in evaluating equity compensation:

What is the exit strategy for the firm and is it a reasonable plan?

Many businesses never reach an exit but turn into lifestyle businesses instead.

How much ownership do you have?

Divide your shares by the total number of shares outstanding to find out.

Are you receiving incentive shares or restricted shares?

The strike price shows the value you must pay to receive the shares and compare it to the current valuation.

Understand the tax implications of each.

How long is the vesting period?

The most common vesting is four years with a one-year cliff.

Can you sell your shares on the secondary market and does the company facilitate the sale?

Can you take the vested shares if you leave the company or do you have to sell the shares back?

Make sure the promised equity is formally documented.


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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.