The Equity in the Offer Letter Isn’t the Whole Equity Deal

A startup can promise a precise amount of equity and still leave most of the deal unresolved.

One percent sounds specific. So does a grant of 100,000 options. But neither tells a candidate when vesting starts, what happens if the role ends, how long vested options remain exercisable, whether anything accelerates in a sale, or even what type of equity the company will grant.

The number gets the candidate’s attention. The terms determine the deal.

When those terms are postponed until the formal equity documents arrive, the candidate may already have accepted the job, resigned from another position, and treated the negotiation as finished.

That’s how a recruiting conversation becomes a trust problem.

One percent can describe several different deals

One person may receive restricted stock purchased early at a low price. Another may receive options with an exercise price set months later. A third may receive an LLC profits interest that participates only in value created above a specified threshold.

Even within the same type of award, the result depends on details the headline number doesn’t answer.

Does vesting begin on the employee’s start date or the later grant date? Is the award a fixed number of shares or a percentage of a stated capitalization? What happens if the board doesn’t approve it promptly? How long can vested options be exercised after departure? Does anything accelerate if the company is acquired and the employee is then terminated?

Those aren’t administrative footnotes. They’re the economics.

Delay is not neutral

Companies often leave the details for later because the hire needs to move quickly. That’s understandable. Early-stage companies are busy, boards don’t always meet on a tidy schedule, and an option grant may require a current valuation before the exercise price can be set.

But time can change the deal even when nobody changes the promise.

A later valuation can produce a higher exercise price. A financing can change what a fixed share count represents as a percentage. A delayed approval can create a dispute over when vesting should have started. Meanwhile, the company may believe it promised a standard award under its plan while the employee believes the parties agreed to specific protections discussed during recruitment.

Nobody has to act in bad faith. The parties may simply have treated an incomplete agreement as a finished one.

Termination is part of the price

Equity discussions naturally focus on what happens if the company succeeds. The harder questions concern what happens if the relationship ends first.

An executive may accept less cash because the equity is intended to compensate for risk. How much of that equity survives if the role changes, the company hires someone above the executive, the relationship doesn’t work out, or the company is sold before the award fully vests?

Those aren’t remote possibilities. They’re ordinary parts of the startup lifecycle.

That doesn’t mean every executive should receive acceleration, extended exercise rights, or special termination protection. It means the presence or absence of those protections is part of the bargain. It shouldn’t first appear as boilerplate after the candidate has accepted the offer.

Clarity protects the company too

A founder may view the equity as compensation for several years of service. If the employee expects to retain a meaningful portion after a short tenure, the disagreement can become expensive and distracting.

The company also needs to know whether it promised a fixed number of shares or a percentage, what capitalization figure applies, whether dilution is understood, and whether the award is expressly subject to the equity plan and board approval.

Clear terms protect the company from making a promise it can’t administer or didn’t intend to make. They also make the recruiting process more credible. A candidate is more likely to trust an offer when the founder can explain not only how much equity is being offered, but how it works.

Paper the economics, not just the headline

An offer letter doesn’t need to reproduce every provision of a stock plan or grant agreement. It should capture the material deal the parties believe they’ve made.

That usually means addressing:

• the expected type and amount of the award;
• the vesting schedule and commencement date;
• the required approvals;
• the basic treatment on termination;
• any agreed acceleration terms; and
• whether the amount is fixed or intended to represent a percentage of a stated capitalization.

The formal documents can then implement the deal instead of reopening it.

Equity is supposed to align a company and the person joining it. The best time to test that alignment is before the candidate resigns from another job. The worst time is when everyone remembers the same number and a different deal.