Equity
An ownership stake in a company, typically in the form of stock or stock options.
Definition
Equity represents ownership in a company. In startups, employees typically receive equity through stock options or RSUs, giving them a financial stake in the company's success. Equity is the primary way startups compete with larger companies on compensation; the idea is that a small ownership stake in a fast-growing company could be worth more than the salary gap.
Why it matters
Your equity is potentially the most valuable part of your compensation at a startup. Understanding what you own, what it could be worth, and the risks involved is critical for making career and financial decisions.
Example
You receive an offer with $150K salary plus 50,000 stock options. At the current 409A of $2/share and a last-round PPS of $10, your options could theoretically be worth $400K if you exercise at $2 and the company exits at $10/share.