The offer letter is the sales pitch
An engineer I know accepted a Series B startup offer last year. Great salary, "0.4% equity, four-year vest with a one-year cliff." She was excited. She accepted within a day. The recruiter told her it was one of their strongest offers of the quarter.
Three years later at the acquisition she was one of the top-performing employees at the company. She'd expected her 0.4% stake to translate to real money — she'd been quietly modeling what a $200M exit would mean for her. When the acquisition closed at $180M, her check was $170,000, not the $500,000-plus she'd modeled.
The math wasn't wrong. Her 0.4% was calculated on the issued share count when she joined. By exit, dilution had reduced it to 0.24% of a fully diluted cap table with $50M in liquidation preferences sitting above common. Every number in her mental model was structurally different than reality.
She never asked. Nobody told her. The offer letter didn't mention any of it.
This is the most common story in startup equity comp. Employees accept offers based on percentages they don't fully understand, calculated against denominators they've never seen, sitting under waterfalls they've never modeled. The offer letter is not the offer. The offer letter is the sales pitch.
Why the offer letter alone doesn't tell you what you need to know
A typical startup offer letter says something like "10,000 options at a $2 strike, four-year vest, one-year cliff, representing approximately 0.4% of the company." That's four data points. It sounds like enough. It isn't.
The four numbers that actually determine what your equity is worth — the fully diluted share count, the current 409A valuation, the most recent preferred stock price, and the total liquidation preference stack sitting above common — are almost never in the offer letter. You have to ask.
Recruiters and hiring managers won't volunteer this information. Some don't know it themselves. Some know it and don't want to talk about it. Either way, you need to ask before you sign.
Here are the seven questions that tell you what the offer letter doesn't.
1. What's the fully diluted share count?
Your ownership percentage is your shares divided by the total shares outstanding. But "total shares outstanding" has two definitions.
Issued shares is the smaller number — shares that have actually been distributed to shareholders. Fully diluted shares include everything: issued shares plus the option pool (both granted and ungranted) plus SAFEs and convertible notes plus warrants.
Investors always negotiate on a fully diluted basis. So should you. If the recruiter tells you 0.4% and won't say what denominator that's calculated against, assume it's the smaller number and mentally revise downward by 25-40%.
Ask specifically: "Is this percentage calculated on issued shares or fully diluted?" If the answer is issued shares, ask what the fully diluted percentage is.
2. What's the current 409A valuation?
The 409A is an independent appraisal of common stock fair market value. It sets your strike price — the price you pay to exercise your options. It also determines the AMT spread if you ever exercise while still at the company.
A recent 409A is a green flag. A stale 409A (more than 12 months old, or from before the last funding round) is a red flag — it means the company hasn't updated its valuation since the last preferred round, and your strike price may be lower than the current fair market value.
Ask: "When was the last 409A valuation, and what was the strike price it produced?"
3. What's the most recent preferred stock price?
The preferred stock price is what investors paid per share in the most recent round. It's typically 3-10x higher than the 409A common stock price.
Why it matters: the preferred price tells you what sophisticated investors think the company is worth. The 409A tells you what the IRS thinks it's worth for tax purposes. The spread between them tells you how the company is priced by outside capital vs. tax authorities.
A big spread means significant paper appreciation between funding rounds — good for you if you exercise ISOs and hold. A small spread suggests the 409A is catching up to the market, meaning less tax-advantaged appreciation available.
Ask: "What was the preferred stock price at your last round, and when did it close?"
Every equity offer is really an offer of shares divided by a denominator. If they won't tell you the denominator, you don't know the offer.
4. What's my post-termination exercise window?
If you leave the company, how long do you have to exercise your vested options before they expire?
Standard is 90 days. Anything longer is meaningful additional compensation. Some companies offer 1 year, 5 years, or 10 years — Coinbase, Pinterest, and a handful of others have led the way here.
Why it matters: the 90-day window forces you to write a check and pay AMT within a short window if you want to keep any of your equity when you leave. An extended window gives you time and flexibility.
Ask: "What's my post-termination exercise window if I leave for any reason?"
5. Are these ISOs or NSOs?
Incentive Stock Options (ISOs) get preferential tax treatment — no ordinary income tax at exercise (though AMT may apply), and long-term capital gains if you hold long enough after exercise.
Non-qualified Stock Options (NSOs) trigger ordinary income tax on the spread at exercise, regardless of whether you sell the shares.
For most employees, ISOs are meaningfully better. But there are limits — you can only receive $100,000 worth of ISOs vesting per year (measured at strike price). Larger grants automatically split into ISO and NSO portions.
Ask: "Are these ISOs or NSOs, and if some of both, what's the split?"
6. What refresh grants can I expect and when?
Your initial grant dilutes over time as the company issues new shares to new employees and future investors. Refresh grants offset this dilution.
Best-in-class practice is a small refresh grant on your 2-year anniversary and additional refresh grants at 4 years and beyond. Some companies grant no refreshes at all, meaning your ownership percentage shrinks meaningfully every year.
Ask: "What's the company's refresh grant policy? What have your top performers received in refresh grants historically?"
7. What's the total liquidation preference stack sitting above common?
This is the question almost nobody asks. It matters enormously.
Liquidation preferences are the amounts preferred investors must be paid before common shareholders (that's you) receive anything in an exit. If the company has raised $50M total across multiple rounds with 1x non-participating preferences, that's $50M sitting above your common stock.
At a $60M exit, common shareholders share $10M. At a $100M exit, they share $50M. If your percentage was calculated against exit value and you didn't know about the preference stack, your mental model is dramatically off.
Ask: "What's the total liquidation preference stack sitting above common, and are any of the preferences participating or above 1x?"
What the answers tell you
Green flags: recent 409A (updated within 12 months), meaningful spread between 409A and preferred price, extended post-termination exercise window, ISOs, refresh grant policy documented and applied consistently, liquidation preference stack that's small relative to realistic exit scenarios.
Red flags: stale 409A (over 12 months, or missing since last funding round), reluctance to disclose the preferred stock price, standard 90-day exercise window with no plans to extend, NSOs when ISOs are possible, no refresh grant policy or ad-hoc refreshes only for executives, liquidation preference stack that's a meaningful fraction of any realistic exit scenario.
The answers don't necessarily determine whether to take the job — every offer is a balance of salary, cash bonus, benefits, mission fit, and equity. But they do determine what your equity is actually worth, which is often 30-60% less than the offer letter suggests once you know the full picture.
What to do about it
Four concrete actions before signing any startup offer:
Ask all seven questions in writing. Email the recruiter or hiring manager. Get the answers documented. If they refuse to answer or say "we don't share that," treat it as a signal about how they'll treat you as an employee.
Do the math yourself. Calculate the fully diluted percentage. Model your exit value at a 1x, 3x, and 10x return. Subtract the liquidation preference stack before applying your percentage.
Compare offers on the same terms. If you have multiple offers, calculate the equity value the same way for each. Don't compare 0.4% at Company A to 0.3% at Company B without knowing what denominators and preferences are behind each.
Talk to a CPA who specializes in startup equity before you exercise anything. These decisions have real tax consequences and generalist accountants will give you wrong or incomplete advice.
The takeaway
You are not signing an offer letter. You are signing an equity deal that could be worth zero or could change your life. The difference between those outcomes isn't your effort or the company's success alone — it's whether you understood what you signed at the moment you signed it.
Ask the questions. Get the answers in writing. Do the math. And if you're not sure how to do the math, that's what Gargiulo is for.
Want to walk through your first offer letter one question at a time? Try Stage 1 of the Journey on Gargiulo — five scenarios that take you from confused new hire to informed signer. Sterling has questions of his own.
Sources: Carta, Secfi, Compound Planning, and analysis from a16z's talent team.