Equity compensation planning: How to make sense of your startup equity
23 min
San Francisco native (yes, really). @uw and Lowell High alum. I like to nerd out on fintech, stock options and taxes.
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San Francisco native (yes, really). @uw and Lowell High alum. I like to nerd out on fintech, stock options and taxes.
There are a lot of reasons you might be thinking about equity compensation planning.
Maybe you heard coworkers talking about 409 valuations or AMT, and realized your equity might be more complicated than you thought.
Or possibly:
You just got an offer with startup stock options, and you want to figure out if they could be worth something meaningful one day.
Your startup is getting closer to an acquisition or IPO, and you're wondering what you could actually keep after taxes.
You're thinking about leaving your company, so you may only have a short timeframe to exercise your vested options.
Whatever your reason, this guide can help you ask the right questions and help avoid costly mistakes when it comes to your equity compensation.
We'll cover:
How equity compensation planning works
Why planning your equity is really an investment decision
How to plan your equity compensation based on the stage of your startup
Questions to ask your employer about your equity compensation, and what you may be able to negotiate
Common equity compensation planning mistakes to avoid
Ways startup employees can plan your equity compensation with Secfi
How Secfi helped an engineer model equity outcomes and exercise his shares without paying out of pocket
Note: Compare scenarios for your equity compensation planning with our free AI equity assistant Maeve.
Equity compensation planning is the process of understanding what equity you have, what it could be worth, what it could cost you, and what decisions you may need to make over time.
There's no way to predict every outcome perfectly. You can't know whether your company will become the next Snowflake, stay private for another 10 years, or never reach an exit.
But you can understand your options early enough so that you can make a deliberate decision, instead of waiting until a deadline or tax bill forces one.
While some people treat equity like a potential bonus, we suggest looking at it more like an investment decision.
Before you decide what to do with your equity, it helps to understand how meaningful the equity actually is to you personally.
Think about the potential value relative to your own net worth, not just the company's valuation. If the outcome is $200,000, is that a nice bonus or a life-changing amount? Different people will have different answers.
The more meaningful your equity could be, the more intentional you want to be about planning. If the potential outcome could materially change your life, it's worth taking the time to understand different scenarios.
Remember that when you exercise stock options, you're choosing to put your own money into a private company. That decision may make sense if the potential return is meaningful and you can afford the downside. But exercising is still a risk. If you'd need to use money you can't afford to lose, it may not be the right move, even if the potential upside looks exciting on paper.
When you're researching equity compensation, keep in mind that the stage of your startup makes a big difference in how you approach your decisions. Much of the advice you'll see online doesn't take your company's stage into account.
Here's how the planning considerations often change by stage:
| Startup stage | What it might mean for you | What equity may look like | Main planning opportunity | Main risk |
|---|---|---|---|---|
Early-stage startup | You may be able to exercise while taxes are still relatively low, but you're taking the biggest company risk. | Lower strike price, lower 409A valuation, and potentially a more meaningful ownership percentage. | Exercising early may be more affordable and could help with future tax treatment if the company succeeds. | Company risk is highest. Your shares could become worthless, and liquidity may be many years away. |
Growth-stage startup | There may be more proof that the company is working, but exercising will likely cost more than it would have earlier. | More company traction, higher valuation, and more information to evaluate, but higher exercise cost. | Modeling before another funding round or 409A increase may help you understand whether acting earlier makes sense. | Exercise costs and taxes may become more expensive as the company grows. |
Late-stage or pre-IPO startup | You may be closer to a potential exit, but exercise costs, taxes, and company rules can make decisions more complicated. | Higher valuation, potentially lower company risk, and more possible liquidity paths. | Comparing exercising, waiting, financing, or selling if eligible can help you understand what you may actually keep. | Exercising can be expensive, AMT exposure may be significant, and liquidity timelines can still change. |
As you can see, an early employee with low-cost options at a Seed or Series A startup is making a very different decision than an employee with expensive vested options at a late-stage, pre-IPO company.
In the first case, the exercise cost may be low, but the chance of losing your money may be high. In the other, the company may feel more stable, but exercising could trigger a massive tax bill.
If you're worried about the cost of exercising, we'll talk more about non-recourse financing and how it keeps your personal assets and ability to participate in potential upside safe.
Before you can make a plan, you need the right information about your stock options.
Your offer letter or equity portal may show some information beyond the grant amount, like your vesting schedule and strike price, but that's usually not enough to get a full picture.
Here are the questions to ask your employer so you can make a more informed decision, including potential areas for negotiation.
Start by understanding what kind of equity you have, because different types of equity awards come with different tax rules and costs.
Incentive stock options (ISOs) are usually only available to employees. They may qualify for more favorable tax treatment if you meet certain holding requirements. But exercising ISOs can also trigger the alternative minimum tax (AMT).
Non-qualified stock options (NSOs) can be offered to employees, contractors, advisors, and others. They're generally taxed as ordinary income when you exercise, based on the difference between your strike price and the fair market value of the shares.
You may also receive RSUs or restricted stock, which work differently from stock options because you don't typically "exercise" them in the same way.
A higher number of options doesn't always mean a better offer when you factor in the type of equity.
For example, 50,000 ISOs with a low strike price may be more attractive than 100,000 NSOs with a much higher strike price, because the larger NSO grant could cost more to exercise and create a bigger ordinary income tax bill. (Note that this is just an example, and you should consult with a tax professional before making any decisions.)
In some cases, especially at earlier-stage companies or for senior hires, there may be room to ask whether the equity type or structure is flexible. But many companies have standard equity policies, so you may not be able to negotiate on the equity type.
The number of options or shares in your grant doesn't tell you much on its own.
A grant of 80,000 options might sound big, but it depends on how many total shares the company has. To understand what your grant actually represents, ask for the fully diluted share count so you can estimate your ownership percentage.
For example, if the company eventually sells for $1 billion, your outcome will look very different depending on whether your grant represents 0.01%, 0.1%, or 1% of the company. It also helps you compare the potential value of your equity to your salary and savings.
If the ownership percentage feels low for the role, stage, or risk you're taking, this may be something to negotiate before you accept the offer. You can ask whether there's room to increase the grant, add a refresh grant, or revisit equity after a milestone such as a promotion or funding round.
Your strike price tells you how much you'll pay to exercise each stock option. If you have 10,000 options with a $1 strike price, it would cost $10,000 to exercise before taxes.
The 409A valuation is the company's estimate of the fair market value of its common company stock. For stock options, the gap between your strike price and the 409A valuation can affect your tax bill when you exercise.
This is especially important for ISOs, because a larger difference between your strike price and the 409A valuation can increase your potential AMT exposure. It also matters for NSOs, where the spread is generally taxed as ordinary income when you exercise.
In plain English: your strike price tells you what it costs to buy the shares. The 409A valuation helps you understand what taxes could be triggered when you do.
You usually can't negotiate the strike price directly, since it's tied to the company's 409A valuation. But knowing the strike price and 409A valuation helps you understand the real cost of the offer. If the equity is expensive to exercise, you may want to negotiate for more salary or equity, a signing bonus, or more time to make an exercise decision.
Some companies allow employees to exercise stock options before they vest. This is called early exercise.
Early exercise can sometimes help reduce future tax exposure because you may exercise when the spread between your strike price and the company's 409A valuation is still small. It may also start the clock earlier for certain tax holding periods, depending on your situation.
But early exercise also means putting your own cash into the company sooner. If the company fails, exits for less than expected, or never becomes liquid, you could lose the money you invested. (Side note, that's one of the reasons we created Secfi. With non-recourse financing, you get the benefits of early exercising, without using your own cash or taking out a traditional loan.)
Ask whether early exercise is available, whether you'd need to file an 83(b) election, and what the deadline is. This is one of those details you want to understand before you act, not after.
If you're still negotiating an offer, early exercise rights may be worth asking about, especially at an early-stage company where the strike price and 409A valuation are still low.
Many employees don't think about their exercise window until they're already leaving. By then, you may have very little time to decide.
Ask what happens to your vested and unvested equity if you leave the company. For stock options, confirm your post-termination exercise window. Many companies historically used a 90-day window, though some offer longer periods.
This is important because leaving can turn equity planning into a deadline-driven decision. You may have to choose whether to exercise, walk away, or find another way to cover the cost while you're also dealing with a job change.
Some companies may be willing to discuss extended exercise windows for senior hires or competitive candidates. This depends on company policy, but it's better to ask before you join than to discover the limitation when you leave.
If your company is still private, your shares may be difficult or impossible to sell unless the company allows it.
Ask whether the company has ever run a tender offer, allowed secondary sales, or supported other liquidity opportunities for employees. This doesn't guarantee you'll be able to sell in the future, but it gives you context on whether employees had paths to liquidity before an IPO or acquisition.
This is especially relevant at later-stage companies, where the potential value of your equity may be higher, but the exercise cost and tax bill may also be much larger.
While this may not be something you can negotiate directly, it can affect how you evaluate the offer. Equity with a possible path to liquidity may feel different from equity that could stay locked up for years.
Qualified Small Business Stock, or QSBS, can offer major tax benefits if your shares qualify and you meet the holding requirements.
Not every company qualifies, and not every type of equity will be eligible. But if QSBS might apply, it can meaningfully change the planning around when to exercise, how long to hold, and what you may keep after an exit.
Ask your company whether it believes it may qualify as a qualified small business and whether your shares could be eligible. Then speak with a tax professional before making decisions based on QSBS, because the rules are specific and the stakes can be high.
QSBS usually isn't a direct negotiation point, but it can change how valuable the equity may be after taxes. That makes it worth understanding before you decide whether the grant is meaningful enough to plan around.
If this sounds like a lot to ask your employer, that's because it is. Equity compensation planning can be complicated, and factors personal to you and specific to your company will have an impact.
That's why it can help to bring these details into Maeve, Secfi's free AI equity assistant. You can plug your details into Maeve, figure out the most relevant questions for your employer, and ask follow-up questions to help compare different equity planning scenarios.
For illustrative purposes only. Actual results may vary, and there is no guarantee of any particular outcome.
Once you have the right details, the next step is to use them to make a plan that makes your life easier. Of course, we suggest bringing Maeve into this process instead of relying on spreadsheets and calculators, but it's up to you!
Here's what to do:
Gather your equity details in one place. Start with the basics: equity type, number of options or shares, vested amount, strike price, 409A valuation, vesting schedule, expiration date, and post-termination exercise window. Without these details, it's hard to model what your equity could cost or become.
Estimate what it would cost to exercise. The exercise cost is usually your strike price multiplied by the number of options you want to exercise. But the full cost may also include taxes which are higher than you'd expect, so it's worth checking whether AMT, ordinary income tax, or potential QSBS treatment could affect the decision.
Model the tax impact before you act. Exercising ISOs can trigger AMT, while exercising NSOs can create ordinary income tax. Timing also matters because a higher 409A valuation can increase the difference between your strike price and the fair market value of the shares.
Compare a few possible scenarios. Look at what could happen if you exercise now, wait, leave the company, exercise after a 409A increase, sell shares if eligible, or do nothing. This can help you see whether one path creates more cost, risk, or potential upside than another.
Decide how much risk you can afford. Exercising stock options means putting your own money into a private company. Before you act, consider how much of your savings or net worth would be tied up, how long your money could be illiquid, and whether you could afford to lose it.
Revisit your plan when something changes. Your equity plan should change as your company and life change. Funding rounds, tender offers, IPO rumours, a new job offer, leaving your company, or a major personal financial goal can all change the decision.
Even a promising equity grant can become less valuable if you miss a deadline, underestimate taxes, or make decisions without understanding the tradeoffs. Here are a few mistakes to watch for.
Forgetting that taxes can be due before liquidity. Exercising options can trigger taxes before you're able to sell shares. This is especially painful with AMT, where you may owe tax on shares that are still private and illiquid.
Waiting until your 90-day exercise window. If you leave your company, you may have a limited window to exercise vested options. By then, you may have less time to plan, find cash, or figure out the tax impact.
Only looking at the number of shares or options. A large grant can look impressive, but the number matters less than your ownership percentage, strike price, taxes, and potential exit outcome.
Exercising early without understanding the downside. Early exercise can sometimes help with taxes, but it also means putting cash into a private company sooner. If the company fails or never exits, you could lose the money you used to exercise.
Assuming your equity will automatically turn into cash. Private company shares may stay illiquid for years, and some never become liquid at all. Don't build a financial plan around an IPO, acquisition, or tender offer that may not happen.
Treating equity like free money. Equity can become meaningful, but exercising stock options is still an investment decision. It involves cost, tax, risk, and uncertainty.
Making meaningful decisions without speaking to an expert. Even extremely smart people who work in finance can make small errors that could end up leaving you with a massive tax bill, or leaving potential upside on the table. Make sure you speak with a qualified specialist who understands equity and its nuances, because most financial planners don't have much experience in this area.
Equity compensation planning can get complicated quickly, which is why Secfi was built specifically for startup employees navigating similar situations. More than 55,000 startup employees* use Secfi's tools, representing over $21 billion in equity, and Secfi has provided nearly $790 million in financing to help employees own their stock options.
Whether you're trying to avoid a costly mistake, ask better questions before accepting an offer, or understand whether exercising makes sense, Secfi can help you move from "I have equity" to "I know what my options are."
Here's why executives and employees from companies including SpaceX, DataBricks, and Gusto choose Secfi:
Secfi's AI equity assistant Maeve helps you understand and model your equity in one place. It connects directly to Carta, or you can upload your documents directly, so you can start asking questions based on your actual data quickly.
From there, you can use Maeve to spot the questions you still need to ask, get ideas for negotiation, and avoid being surprised by taxes or deadlines.
For illustrative purposes only. Actual results may vary, and there is no guarantee of any particular outcome.
You can ask Maeve questions like:
What would it cost to exercise my options?
How does the AMT credit impact my taxes?
Is it better to exercise now or wait?
If I plan to leave my company soon, what plans should I put in place?
Should I consider financing or a secondary sale?
Learn more about why we built Maeve for startup employees in: Why we built Maeve.
Secfi's team of wealth advisors spends every business day helping startup employees and executives with their equity compensation planning. Our knowledge can fill in the gaps that a regular tax planner or financial advisor wouldn't even know you're missing.
This is especially useful when your situation is too specific for generic advice, like if you're preparing for a potential IPO or trying to understand whether your equity is meaningful enough to plan around. Our team can help you understand the risks and tradeoffs that you feel comfortable taking, and decide what meaningful equity looks like to you.
In fact, our founders created Secfi because they missed out on millions in potential equity without the right guidance and funding. Their goal was to create a place where startup employees can get reliable information and access to funding all in one place.
For many startup employees, the biggest barrier to exercising stock options is cost. Even if you believe in your company, exercising may require a large cash payment for the strike price, plus taxes.
Secfi's non-recourse financing can help eligible employees cover the cost to exercise their stock options and associated taxes. There are no monthly payments, and personal assets like your car or house are never on the line.
If your company has a successful liquidity event, such as an IPO, acquisition, or eligible secondary sale, you repay Secfi from the proceeds. If the company never exits or the shares become worthless, you don't owe Secfi back. That's why we take the time to learn about your company and give you our honest opinion before working together.
Non-recourse financing helps you keep potential financial gains if your company's valuation increases, and start taking advantage of more favorable tax treatment so you don't wind up with a bigger bill than you expected.
We can also help you with a secondary sale if you're considering selling your shares and are eligible to do so.
Victor, an engineering leader at a late-stage startup, knew his equity could be meaningful, but he didn't want to make a major exercise decision based on guesswork.
He saw colleagues struggle with stock options and unexpected AMT bills, so he built himself a chart modeling different scenarios for his stock options. His models grew increasingly complex as he tried to figure out how different choices would impact his taxes and potential gains.
Eventually, he realized he'd prefer to work through his equity compensation planning with people who worked in the field directly.
Victor said he chose Secfi because the team was responsive and clear, using plain language so he could make a decision that fit his personal finances. The team walked him through how exercising his stock options could trigger taxes, and what that might mean for his long-term tax outcomes.
Eventually, Victor decided to use non-recourse funding to cover exercise and AMT costs.
"Secfi was definitely the best," Victor said. "I got responses immediately, it was amazing."
Read the full case study: Why this engineering leader chose Secfi to finance his stock options.
Testimonials are specific to an individual Client's experience and may not be representative of all Clients. Unless otherwise indicated, Clients offering a Testimonial do not receive compensation and their statement does not present a conflict of interest.
There are a lot of questions to ask when you get started with equity compensation planning. But you shouldn't hold back, because equity is an investment that could potentially change your life, or at least give you a nice cash bonus one day to help you buy a house or pay for education.
Secfi's team hears questions about equity every day, and we know answers to nuances beyond a generalist advisor. We work with startup employees and executives at every stage of the startup journey, and can help you figure out what each stage means for your equity planning.
And if you're eligible and decide you want non-recourse financing, we've done the most transactions out of all equity financing partners in the US.
When you're ready to start asking equity questions, try out our free AI assistant Maeve. If you prefer to speak directly with our team, get in touch.
Equity compensation planning is the process of understanding what equity you have, what it could be worth, what it could cost to exercise or own, and what decisions you may need to make over time.
For startup employees, equity compensation planning often means looking at your stock options, exercise price, 409A valuation, vesting schedule, exercise window, taxes, AMT exposure, and possible liquidity events like an IPO, acquisition, tender offer, or secondary sale. It can also include other forms of equity, such as RSUs or employee stock purchase plans (ESPPs), depending on what your company offers.
Secfi's AI equity assistant Maeve can help you model these details in one place, so you can compare different scenarios before making a decision.
The best equity compensation planning tools help you understand your actual equity, not just generic definitions. A useful tool should help you estimate exercise costs, model taxes, compare possible exit scenarios, and understand what could happen if you exercise, wait, sell, or leave your company.
Secfi's Maeve is built specifically for startup employees. It can connect to Carta or let you upload documents, then help you ask questions about your stock options, AMT, 409A valuation, exercise timing, financing options, tax implications, and potential liquidity scenarios.
For more complex decisions, Secfi's wealth team can help you interpret the numbers and think through the tradeoffs.
To understand whether your startup equity could be worth anything, you need more than the number of options or shares in your grant. You'll want to know your exercise price, the company's 409A valuation, the fully diluted share count, your ownership percentage, the company's stage, and what your shares could be worth in different exit scenarios.
You should also compare the potential value to the cost, risk, and tax implications. A grant may look valuable on paper, but exercising could require real cash, trigger taxes, and leave you holding private shares you can't sell yet. If the company succeeds and you meet the relevant holding requirements, long-term capital gains treatment may also affect what you keep after an exit.
Maeve is an AI equity assistant that can help you model possible outcomes based on your equity details, including what you might keep after exercise costs and taxes.
Best practices in equity compensation planning include gathering your equity details early, asking your employer the right questions, estimating exercise costs, modeling the tax impact, and comparing multiple scenarios before you act.
You should also understand the type of equity you have, whether that's stock options, RSUs, restricted stock, or an ESPP, because each can have different tax rules, liquidity constraints, and planning considerations. For stock options, it's especially important to understand your exercise price, potential AMT exposure, and whether your timing could affect eligibility for long-term capital gains treatment.
Secfi can help you with this process through Maeve, which helps model different scenarios, and through its team of equity specialists, who can help you think through taxes, timing, risk, and financing options.
When you leave your company, your unvested stock options usually expire. Your vested options may still be exercisable, but only for a limited period of time. Many companies use a 90-day post-termination exercise window, though some offer longer windows.
This can create a stressful decision. You may need to decide whether to exercise, walk away, or find a way to cover the exercise cost and taxes before the deadline. Your exercise price, 409A valuation, and the tax implications of exercising can all affect whether it makes sense to act.
Secfi and Maeve can help you understand what it could cost to exercise before your window closes, what taxes may apply, and whether non-recourse financing could be an option if you're eligible.
The tool shown here uses artificial intelligence and is for illustrative purposes only and not necessarily indicative of future results and there is no guarantee that similar results can be achieved. The information provided by the tool is not professional advice and is not intended by Secfi, Inc., its affiliates, and Secfi representatives, to be deemed as investment, legal, tax or other professional advice or recommendations of any kind, or to form the basis of any decision to do or to refrain from doing anything. Secfi does not review the accuracy or completeness of the information provided to us within the tool.
*As of 7th September 2026