Equity can be a major part of a startup job offer, but candidates often struggle to understand what the number actually means.
Equity has become an increasingly important part of startup compensation, particularly when companies are competing for experienced engineers, product leaders, and other highly sought-after talent. Yet while founders may view an equity grant as a significant part of an offer, candidates often struggle to understand what the number actually represents or how much it could ultimately be worth.
The recent leak of Microsoft employee compensation data illustrates the contrast. An internal spreadsheet reportedly containing compensation information from hundreds of Microsoft employees included base salaries, bonuses and stock awards across different roles and levels. The data was anonymous, unofficial and self-reported, so it should not be treated as a comprehensive picture of Microsoft compensation. Nevertheless, it gives employees something that candidates evaluating private-company offers often lack: a reference point for understanding the value of their compensation.
That creates a growing challenge for startup founders. An offer might state that a candidate is receiving $200,000 or $500,000 worth of equity, but the candidate may have very little information with which to determine whether that grant is actually competitive.
As equity takes on a larger role in startup hiring, making those numbers easier to understand could become an important advantage for companies trying to close strong candidates.
Equity Is Taking a Larger Role in Startup Hiring
The hiring environment has changed considerably from the peak of the venture-backed hiring boom. Carta’s latest data shows that venture-backed companies made 26,030 new hires in January 2026, compared with 20,378 departures. While companies were still adding employees overall, the pace of hiring remained far below the levels seen during the technology hiring surge of 2021 and 2022.
A more selective hiring environment also means companies have to make each offer count, particularly when competing for employees who have multiple options.
For many startups, equity is one of the primary tools available to compete with larger technology companies on compensation. A young company may not be able to match the salary offered by a large public company, but it can offer employees the possibility of substantial upside if the business grows significantly.
The problem is that the upside is much harder to evaluate.
An employee considering a job at Microsoft can look at the current market price of Microsoft shares and calculate the approximate value of their stock compensation. A candidate considering a private startup cannot do the same thing. The company’s shares are not publicly traded, and the value presented in an offer letter may depend on assumptions that the candidate cannot independently verify.
This makes transparency particularly important.
A Large Equity Number Does Not Tell the Whole Story
The dollar value written on an offer letter is only one part of the equation.
A candidate evaluating a startup equity grant needs to understand the number of options or shares being offered, the company’s fully diluted share count, the exercise or strike price, the most recent 409A valuation,n and the percentage of the company represented by the grant.
The terms surrounding those options matter just as much.
Candidates should understand the vesting schedule, including whether there is a one-year cliff, the period before options expire, the amount of time employees have to exercise vested options after leaving the company,ny and whether the company provides refresh grants over time.
Liquidity is another critical consideration. Employees can hold vested options for years without having an opportunity to sell them. If the company does not have a public listing, acquisition, or secondary transaction, the theoretical value of the equity may remain just that. Theoretical.
There is also the possibility that the company fails to grow as expected. If the eventual value of the shares does not rise sufficiently above the exercise price, the options may have little or no economic value.
For that reason, describing an equity grant simply as “$500,000 in equity” can create a misleading impression unless the underlying assumptions are explained.
Founders Should Explain How the Grant Was Calculated
Transparency does not mean promising that an employee’s options will eventually be worth a particular amount. It means giving candidates enough information to understand what they are being offered and what would need to happen for the equity to become valuable.
A founder could, for example, explain that a candidate’s grant represents a specific percentage of the company on a fully diluted basis and provide the current 409A valuation and exercise price. The company can then illustrate how the value of that ownership might change under different future valuations, while making clear that future financing rounds could dilute existing shareholders and that taxes and exercise costs would also affect the employee’s eventual proceeds.
That explanation gives candidates something far more useful than a headline dollar figure.
It allows them to understand the relationship between the equity they are receiving and the company’s future performance.
It also makes the risk more visible.
Startup equity is not guaranteed wealth. It is compensation tied to the future value of a private company, and that value depends on factors ranging from revenue growth and profitability to future fundraising, dilution, liquidity and the eventual outcome for shareholders.
Candidates deserve to understand that distinction before making a career decision.
Equity Should Reflect a Clear Compensation Philosophy
There is another problem that becomes visible once companies start examining their equity grants more closely. Equity does not necessarily need to be distributed equally across functions, but significant differences should have a clear rationale.
An early engineer may receive a larger grant than a salesperson because the engineer joined earlier, is taking on greater company-building risk,k or possesses skills that are particularly difficult to hire. A senior product executive may receive a different grant because of the scope of the role and its expected impact on the company’s value.
Those differences can be perfectly reasonable.
What becomes problematic is when founders cannot explain them.
If employees in different functions receive substantially different equity packages without a consistent philosophy behind those decisions, the company can eventually face questions about fairness, internal equity, ty and compensation practices. Candidates are also becoming more capable of comparing offers through online compensation communities and startup equity databases, making unexplained differences harder to hide.
A compensation strategy should therefore answer a straightforward question: why does this role receive this amount of equity at this stage of the company’s development?
If the answer is unclear, the company may be relying on historical decisions rather than an intentional compensation framework.
Transparency Can Help Startups Compete With Big Tech
The Microsoft compensation leak is useful not because it provides a perfect benchmark, but because it demonstrates how much easier compensation becomes to evaluate when employees have access to comparable information.
Reported compensation figures from the leaked spreadsheet showed substantial stock awards for some Microsoft employees, particularly in its Cloud and AI organisation. The figures were not official company-wide compensation data, but they nevertheless gave employees and the broader technology community another reference point for understanding how stock compensation varies by role and seniority.
Startups cannot provide candidates with a public market price for their shares. They can, however, provide more context than many currently do.
That could mean explaining the company’s latest valuation, the employee’s ownership percentage, the exercise price, the vesting terms, and realistic scenarios for how the equity could perform if the business reaches different future valuations.
A candidate comparing a startup offer with a public-company offer is already making an assessment of risk. Making the startup’s equity easier to understand does not eliminate that risk, but it allows the candidate to decide with better information.
The Best Equity Offer Is Not Necessarily the Biggest
Founders often focus on making the equity number look attractive, but the more important objective should be making the grant understandable.
A candidate should be able to distinguish between the current paper value of an option grant, its potential future value, and the conditions that would need to be met for that value to become real.
That requires founders to explain both the upside and the uncertainty. Candidates should know what percentage of the company they own, what they would have to pay to exercise their options, how long they have to exercise them, how future fundraising could affect their ownership,p and whether employees have historically had opportunities to achieve liquidity.
This level of transparency does not weaken an equity offer. In many cases, it makes the offer more credible because the company is demonstrating that it is willing to discuss the difficult parts as well as the attractive ones.
The fundamental test is simple: Can the person receiving the offer understand what would have to happen for the equity to become meaningful money?
If they can, the company has given them compensation they can properly evaluate. If they cannot, the company has given them a large number without giving them the information needed to understand what that number actually means.
