Latest / Executive Careers with Fexingo: VP, C-Suite, and Senior Leadership Career Strategy / How Senior Leaders Negotiate Equity Grants
Transcript
- Lucas: You're a VP of Product at a Series B company. They offer you a 0.5 percent equity stake. Is that good? How do you even know? Luna: Most people look at that number and just nod. But equity is where the real wealth is — or where the disappointment lives. Lucas: Exactly. And the funny thing is, the percentage itself tells you almost nothing. You need the cap table, the liquidation preferences, the vesting schedule, the exercise window. That's the actual offer. Lucas: And here's a quick honest thing — a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making episodes like this. No ads, no sponsors, just people who find this useful. If you've gotten something out of the show, that's the button. Luna: Yeah, it keeps us independent. And it means we don't have to tailor content for anyone but you. Lucas: Right. So back to equity — let's start with vesting. Standard is four years with a one-year cliff. But for senior leaders, I think you should negotiate that cliff down to six months. Luna: Why six months? What's the argument? Lucas: Because your opportunity cost is higher. If you're a VP leaving a secure job to join a startup, you're taking real risk. A six-month cliff means you're not waiting a full year to see if you get any equity at all. Some boards will push back, but it's reasonable. Luna: I've also seen executives negotiate for single-trigger acceleration. That's where if the company is acquired, your unvested shares vest immediately. Double-trigger requires both an acquisition and termination. Lucas: Single-trigger is aggressive. Most companies will give you double-trigger. But if you're a key hire, you can ask for single-trigger on a portion — say half your shares. It's a signal that they really want you. Luna: And then there's the exercise window. That's the time after you leave to actually buy your vested options. Standard is 90 days. Lucas: Which is brutal. You're leaving, you might not have cash to exercise, and if the company hasn't gone public, you could be buying illiquid stock. I've seen people let millions expire because they couldn't come up with the cash. Luna: Statistically, over 60 percent of startup employees let options expire worthless. That's from a study by the National Bureau of Economic Research. Lucas: Right. So negotiate for a longer exercise window — 10 years is ideal, but even 5 years is better than 90 days. Some companies now offer early exercise, where you can buy shares before they vest, which starts the capital gains clock. Luna: And that's where the 83 election comes in. If you early exercise, you can file an 83 election with the IRS to pay tax on the spread at grant, not at vesting. If the company grows, that can save you a ton. Lucas: But you have to do it within 30 days of grant. Miss that window and you're paying tax on the full value at vesting, which could be huge. I've seen executives forget and get hit with a six-figure tax bill. Luna: So let's talk about valuation. How do you even know what that 0.5 percent is worth? The 409A valuation sets the strike price, but that's often lower than what the preferred shareholders think. Lucas: Great question. The 409A is for tax purposes — it's the fair market value of common stock. But preferred stock usually has a higher liquidation preference. So if the company sells for, say, $100 million, and the preferred has a 1x preference, the common might get very little after that. Luna: That's why you need to see the cap table. Not just your percentage, but how much dilution is baked in. If they plan to raise more rounds, your 0.5 percent could become 0.3 percent. Lucas: And you can negotiate for anti-dilution protection. Not full ratchet — that's rare — but weighted average anti-dilution is common for senior hires. It adjusts your strike price if the company raises down round. Luna: One thing I've noticed: a lot of executives focus on salary and bonus, and treat equity as a lottery ticket. But at senior levels, equity is often the biggest component of total comp. Lucas: That's the mindset shift. You need to negotiate equity like you'd negotiate your salary. Come with data — use sites like OptionImpact or Shareworks to model scenarios. And never accept the first offer. Luna: I once interviewed a CFO who negotiated her equity three times. First at offer, then after a year when she'd delivered results, and again before a funding round. Lucas: That's smart. Because your leverage increases after you've proven yourself. Also, if the company is about to raise, they want you locked in. That's a good time to ask for more. Luna: What about liquidity? If the company is private, your equity is illiquid. Some companies have secondary markets like Forge or EquityZen, but not all. Lucas: Right, and you have to plan for that. If you're expecting to need cash in five years, don't count on selling your shares. Some executives negotiate for a liquidity event trigger — like if the company hasn't gone public within 7 years, they can sell a portion to the company. Luna: That's called a put option. It's rare but it happens. One more thing: taxes. ISOs are taxed differently than NSOs. ISOs can trigger AMT, which is a nasty surprise. Lucas: Great point. ISOs — incentive stock options — get capital gains treatment if you hold them a year after exercise and two years after grant. But the spread at exercise is an AMT preference item. NSOs are simpler: you pay ordinary income tax on the spread at exercise. Luna: So which is better? Most executives prefer ISOs because of the lower capital gains rate, but the AMT risk is real. If the stock appreciates a lot, you could owe AMT on paper gains. Lucas: Right. Some companies offer a mix. And if you're a senior leader, you can ask for a tax gross-up or a loan to cover exercise costs. That's a sign you're a valued hire. Luna: Let's circle back to the original question. That VP of Product with 0.5 percent at a Series B — what should she do? Lucas: First, ask for the full cap table. Model dilution through Series C and D. Second, negotiate the vesting: six-month cliff, double-trigger acceleration. Third, extend the exercise window to at least five years. And fourth, consider an 83 election if you early exercise. Luna: And have a conversation about liquidity preferences. If the preferred stack is 2x, common might never see a dime. Lucas: Exactly. Equity is a conversation, not a number. Treat it like one.