Your Equity Grant Is a Promise That Pays Out on a Schedule
Vesting means you earn shares over time rather than receiving them. The cliff, the schedule, and what happens when you leave decide whether the grant is worth anything at all.
What Vesting Means
Vesting is the process of earning equity over time. A grant of four thousand shares vesting over four years means you earn a quarter of them each year you stay.
Until shares vest, they are not yours. Leaving before then forfeits the unvested portion, which is the entire point: the grant is designed to keep you.
The Cliff
Most schedules include a cliff, commonly one year, before which nothing vests at all. Reach the cliff and a full year worth vests at once. Leave the day before and you receive nothing.
The cliff protects the company from granting equity to someone who leaves quickly. It also creates a sharp edge, and anyone considering leaving near that date should know exactly where it falls.
Equity in an offer letter is a schedule, not a holding. The number quoted assumes you stay for the full term.
Options Versus Restricted Stock
| Stock options | Restricted stock units | |
|---|---|---|
| What vests | The right to buy at a set price | The shares themselves |
| Cost to you | Must pay the strike price | Nothing |
| Worth if price falls | Nothing | Still worth something |
| Typical stage | Early companies | Later and public companies |
Options are worth something only above the strike price. If the company value falls below it, the options are underwater and worthless until it recovers. Units are worth whatever the share is worth, which is why they dominate at larger companies.
The Exercise Window Trap
The detail that causes the most damage is what happens to vested options when you leave. The standard term gives ninety days to exercise, meaning to pay the strike price and buy the shares.
For someone at a private company this can be brutal. Exercising requires real cash, and there may be a tax bill on the difference between strike price and current valuation, on shares that cannot be sold. Employees have faced six figure decisions on illiquid stock within three months of leaving.
Some companies extend this window, which is a meaningful and underdiscussed benefit worth asking about before accepting.
What to Ask
The number of shares alone means nothing without the total outstanding, since a thousand shares of ten million is a very different thing from a thousand of one hundred thousand. Ask for the percentage, or for the total share count.
Then ask the strike price, the most recent valuation, the vesting schedule and cliff, and the post departure exercise window. A company unwilling to answer these is telling you something.
The Realistic Expectation
Most startup equity is worth nothing, because most startups fail. That is not cynicism, it is the base rate, and it should inform how much salary anyone trades away for equity.
Equity is a lottery ticket with better odds than a lottery and worse odds than the pitch implies. Treating it as a bonus if it works, rather than as compensation you are counting on, is the position that survives contact with reality.
The Bottom Line
Vesting turns an equity grant into something earned over years, with a cliff at the start and an exercise deadline at the end. The headline number is the least informative part. The schedule, the strike price, the percentage of the company, and the window after departure determine whether any of it becomes money.