An equity offer gives you a percentage of ownership in a business, and knowing whether to trade part of your salary for it isn’t just a founder’s problem. I've had equity-based packages twice, once at a hotel-tech startup and once at Meta. Right now I'm on the other side of it: I own a balloon delivery company but am also going back and forth with a co-founder about how much of my own money to put into a kids' events and play space we're opening in Brooklyn, New York. So I've had plenty of practice with this math (and the emotions at play), and I'll walk you through it.

Dumbo Balloons, my balloon delivery business, is all mine for now. I built it by drawing on my own skill set: years in content strategy meant I could see how search was changing for local businesses, and I spotted a gap in the neighborhood market. Now I’m weighing what an equity package might look like for a new hire I’m planning for the first half of next year. Whoever takes that job will get answers to every one of the questions below.

After checking in with my intuition and personal finances, I’m leaning hard on pot odds, a cousin of the expected-value math founders use to price a product. At a poker table, pot odds weigh what’s sitting in the middle against your actual odds of winning the hand. Apply that to an offer letter for equity, and your cost is the salary you're giving up. The pot is whatever your shares might be worth someday, and your odds of winning are your honest read on whether this company succeeds. Skip that last part, and you’ve only done half the math — the pot without the odds.

Know Who Gets Paid First

Investors usually use a term called a liquidation preference as a key negotiating point. This means they get their money back before anyone holding common stock (that's you, as an employee) sees a cent. A simplified example: a startup raises $40 million with a standard 1x preference, then sells for $50 million. Great headline. Investors take their $40 million off the top, and common shareholders split what's left: $10 million. If the preference is participating, investors get their money back and then also take a share of that $10 million. If I were looking at an offer today, I'd ask about the total preference stack first.

Know What Your Shares Cost Before They Pay

My first equity was stock options at that hotel-tech startup. Options let you buy shares at a set price (also known as the ‘strike price’), and actually buying them is called ‘exercising’. I never exercised my options. The company wound down before anyone bought it, and I've honestly never been so happy to have done nothing.

Buying your shares can come with a tax bill, even before you sell. Knowing the whats-what is key to avoiding the sticker shock that will come next tax season. Said simply: With incentive stock options (ISOs), you may owe the alternative minimum tax. With non-qualified options (NSOs), you’ll owe income tax that year. And if you leave, you may have only 90 days to decide whether to buy at all.

Then there's the holding question. If you hold shares for 366 days or more, you'll pay the lower long-term capital gains rate when you sell. ISOs only get their best tax treatment if you hold them two years past the grant date and one year past exercise. Waiting can save you real money. It also keeps more of your money tied up in one company longer. These are exciting ‘problems’ to have and a good tax professional can help you decide how much risk you're comfortable with.

Know What You’re Walking Away From

At Meta, my equity came as RSUs (restricted stock units). Those turn into actual stock as they vest, so there's nothing to buy. I wasn't leaving any unvested equity behind when I took the job, so I didn't have much to push back with, and I mostly took what they offered. If you are walking away from unvested shares, that's leverage. Work out the dollar amount and name that at the negotiation table. Just like with a 401(k), vesting schedules are key to know before you start counteroffering.

Expect Your Percentage to Shrink

Every time a company raises another round of funding, it creates new shares, and your slice gets thinner. Say you start with 0.5%. After two rounds that each sell off 20% of the company, you're down to about 0.32%. That's normal. It's fine, even, as long as the company's value grows faster than your percentage shrinks.

The Questions I'd Ask Now

• How many fully diluted shares are there (every share that exists or could, including options no one has exercised yet), and what percentage is mine?
• What's my strike price, and what was the latest 409A valuation (the independent appraisal of share value)?
• What's the total liquidation preference?
• Are these ISOs or NSOs, and can I exercise early?
• How long is the exercise window if I leave?

When Equity Is the Better Deal

Equity makes the most sense when you can live comfortably on a smaller salary, so you can afford to wait on the shares to increase in value. It looks even better when the company is open about its cap table (the breakdown of who owns what) and gives you years to exercise after you leave. Push for cash if you'd need the equity to pay off just to stay afloat, or if they won't show you the numbers.

It also helps to know the customers. Part of why I feel OK putting my own money into the neighborhood play space is the local mom community I'm part of. Between parent conversations and running Dumbo Balloons, I've got a pretty good sense of what kids get excited about at a party and what kind of space families around here keep wishing for. That makes my guess about the pot size much more grounded. If you know a company's customers firsthand, use that when you size up its equity, too.

Run Your Own Pot Odds

Here's the actual math. Add up the salary you'd give up over the whole vesting period. Then estimate what your shares would be worth in a realistic sale, after investors are paid and your stake has been diluted, and subtract what exercising and taxes would cost. If the equity only wins in the best-case scenario, you've found your negotiating point.

Equity is a promise with a payout schedule. Weigh the pot against your odds before you make the call.