What You Need to Know About Negotiating Equity

Startups often trade equity for funding, resources, and top talent, but making the right deal requires strategy. Negotiating equity effectively can determine long-term financial gains, control over decision-making, and how much value you ultimately retain in your company.

Learn how to negotiate equity in a startup, including key factors to consider, common pitfalls to avoid, and strategies to maximize your position.

1. Know What You’re Negotiating: Equity Basics

Before diving into negotiations, you need to fully understand the type of equity you’re dealing with. There are several ways investors and employees receive equity in a startup:

Common Stock: Typically given to founders and early employees. Represents ownership but may have limited voting power.

Preferred Stock: Offered to investors, often carrying special privileges such as priority in profit distributions.

Stock Options (ISOs & NSOs): Provide the right to buy shares at a set price in the future, contingent on certain conditions like a vesting schedule.

Restricted Stock Units (RSUs): Shares granted over time, often based on performance or tenure.

Understanding the structure of your equity offer is critical before beginning negotiations.

2. Determine Your Leverage Before Negotiating

Your ability to negotiate equity depends on your position in the deal. Whether you are a founder securing funding or an employee negotiating your compensation, ask yourself:

How essential is your role? A key hire or sought-after founder may have stronger leverage.

What stage is the startup at? Early-stage companies often offer more equity but less cash, while later-stage startups may provide a mix.

How competitive is your offer? If you have multiple investor offers or job options, you have stronger negotiating power.

Assessing your leverage ensures you negotiate from a position of confidence.

3. Set Clear Priorities Before Negotiating

When negotiating equity, it’s crucial to identify what matters most to you. Ask yourself:

Are you prioritizing ownership control over valuation?
Do you need a salary buffer in addition to equity?
How long are you willing to wait for a liquidity event (IPO, acquisition, etc.)?

Defining your priorities will guide your discussions and prevent you from making decisions that don’t align with your goals.

4. Understand Your Vesting Schedule

Equity doesn’t typically come in one lump sum. Instead, it follows a vesting schedule, meaning you earn your shares over time.

A standard vesting schedule in startups is four years with a one-year cliff, meaning you must stay for at least one year to receive any equity. After that, shares vest gradually over the remaining three years. When negotiating, consider asking for accelerated vesting in case of an acquisition, or early exercise options to potentially benefit from lower tax rates. You could also ask for a shorter vesting period if you’re a founder or key hire.

Understanding and negotiating the vesting structure ensures you aren’t left empty-handed if you leave the company early.

5. Assess Company Valuation and 409A Pricing

Equity is only valuable if the company succeeds. Before accepting an offer, evaluate the company’s valuation and projected growth, the latest 409A valuation, which determines the fair market value of shares, and how future funding rounds could dilute your equity stake.

If the company is growing quickly, negotiate for additional equity or future refresh grants to offset dilution.

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6. Negotiate an Equity Compensation Package That Works for You

If you’re an employee negotiating equity as part of your job offer, balance equity with salary and other benefits. Consider:

Requesting a higher percentage of equity in exchange for a lower salary.
Ensuring equity refreshes for long-term employees.
Confirming what happens to your shares if you leave the company.

Founders should also be mindful of investor equity asks. Giving away too much early on can limit future fundraising opportunities and control.

7. Plan for Dilution and Future Rounds

Equity negotiations don’t stop after your first agreement. Every funding round brings dilution, which reduces your ownership percentage.

To protect your stake, negotiate anti-dilution clauses where possible and understand how new investor terms will affect your holdings. Consider a long-term equity strategy, especially if seeking multiple rounds of funding.

Founders who fail to anticipate dilution often find themselves with much smaller ownership than they expected.

8. Seek Legal and Financial Advice

Equity negotiations are complex and can have long-term financial implications. Consult a high-level business consulting firm or a business growth consultant to review shareholder agreements, ptimize tax implications of stock options, and protect yourself from unfavorable terms.

An attorney or consultant can ensure you’re making informed decisions when negotiating equity in a startup.

9. Have a Clear Exit Strategy

Equity gains are only realized when a liquidity event (IPO, acquisition, buyout) occurs. Ask the company:

What’s the expected timeline for an exit?
Will employees or founders have buyout options?
How will profits be distributed among shareholders?

Founders should ensure that exit terms benefit all stakeholders fairly, while employees should confirm they’ll see returns if they stay with the company long-term.

10. Negotiate with Confidence and Transparency

Negotiating equity isn’t just about numbers—it’s about ensuring both parties see mutual benefit. When discussing equity:

Be clear about your expectations from the start.
Back up your requests with industry benchmarks and company performance data.
Focus on long-term value rather than short-term gains.

By approaching the negotiation process strategically, you increase your chances of securing a fair and beneficial agreement.

The Bottom Line: How to Secure the Right Equity Terms

Negotiating equity is one of the most important financial decisions founders and employees make. Whether securing funding or structuring compensation, it’s essential to:

Understand the different types of equity and their implications.
Negotiate terms that align with your long-term goals.
Seek expert guidance to avoid costly mistakes.

Equity negotiation is about more than just ownership—it’s about maximizing opportunity while protecting your financial interests.

Take Your Equity Negotiations to the Next Level with MarketBridge Advisors

Navigating the complexities of equity negotiations requires expertise, strategy, and the right connections. MarketBridge Advisors offers tailored solutions to help founders secure the best investment deals and optimize their equity strategy.

Our Wall Street Fast Pass program accelerates access to pre-vetted investors. Try our add-on services as well, including the Nasdaq Interview preparation, to refine your messaging for high-profile investment opportunities. Consider other services such as:

Quarterback Coaching: Our pitch refinement service ensures your pitch is compelling and investment-ready.

Social and Video Branding: These CEO Interview packages elevate your public presence, making your startup more attractive to investors.

Offshore Immersion: Looking to expand your network and solidify your funding? Our Offshore Immersion global expansion program helps clients build lasting success.

With these services, MarketBridge Advisors keep you well-positioned for growth.

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Let’s take your startup to the next level—connect with us today.

Everything You Need to Know About Negotiating Equity

1. Know What You’re Negotiating: Equity Basics

2. Determine Your Leverage Before Negotiating

3. Set Clear Priorities Before Negotiating

4. Understand Your Vesting Schedule

5. Assess Company Valuation and 409A Pricing

6. Negotiate an Equity Compensation Package That Works for You

7. Plan for Dilution and Future Rounds

8. Seek Legal and Financial Advice

9. Have a Clear Exit Strategy

10. Negotiate with Confidence and Transparency

The Bottom Line: How to Secure the Right Equity Terms

Take Your Equity Negotiations to the Next Level with MarketBridge Advisors

Let’s Start Bridging Gaps in Your Growth Plans

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