Question 1

How accurate is this IPO equity estimate?

Accepted Answer

This estimator gives you a directional, illustrative range — useful for sizing up the magnitude of a potential payout, not for precise tax planning. The math handles the intrinsic value of your shares at an assumed exit price, the exercise cost for options, and a simplified federal-plus-state tax treatment. It does not model AMT (Alternative Minimum Tax) on ISO exercises, qualified small business stock exclusions (Section 1202), state-specific quirks, or the timing of when you exercised. Use the estimate to think about your equity in the right order of magnitude. For real money decisions — when to exercise, whether to early-exercise, when to sell — talk to a CPA who handles startup equity.

Question 2

What's the difference between ISO, NSO, and RSU?

Accepted Answer

ISO (Incentive Stock Options): you pay strike price to exercise, then if you hold the shares for at least 1 year after exercise and 2 years after grant, the gain at sale is taxed as long-term capital gains. ISOs can trigger AMT at exercise if the spread between strike and 409A is large. NSO (Non-qualified Stock Options): same exercise mechanics, but the spread between strike and fair market value at exercise is taxed as ordinary income immediately — no special long-term treatment unless you hold the shares afterwards. RSU (Restricted Stock Units): no strike price; you receive the shares when they vest, and the full value at vest is taxed as ordinary income. Public-company RSUs typically vest and sell on the same day; private-company RSUs at later-stage startups usually have a double-trigger that requires both time-based vesting and an exit event.

Question 3

What's a reasonable exit value to assume?

Accepted Answer

Use the current 409A or preferred share price as your floor, and model upside by multiples of that. A common framework: bear case is 0.5x (down round or distressed exit), base case is 1.5–2x (modest growth to liquidity), bull case is 3–5x (strong outcome). For early-stage companies that haven't priced a recent round, ask your manager or finance team for the most recent 409A valuation — that's what the IRS considers fair market value for tax purposes. Don't anchor on the company's most optimistic pitch deck number — that's the price the founders hope to hit, not the price a buyer is offering.

Question 4

What is dilution and why does it reduce my payout?

Accepted Answer

Dilution is when the company issues additional shares — new funding rounds, employee stock pool top-ups, IPO secondary issuances — which reduces each existing shareholder's percentage ownership. If you own 0.1% of the company today and the company raises a round that issues 20% more shares, you now own roughly 0.083%. By the time a company IPOs, employees typically experience 30–60% total dilution from grant date depending on how many rounds the company raised. This estimator applies a single dilution percentage as a haircut on the exit value. Real dilution happens in stages and depends on the order in which shares are issued.

Question 5

Should I exercise my options before IPO?

Accepted Answer

It depends on the spread between your strike and the current fair market value, your tax bracket, your liquid cash available, and your conviction in the company. The upside of exercising early: you start the long-term capital gains clock, which can save you significant tax at exit. The downside: you're spending real cash on private illiquid stock that may be worth zero. Most engineers should not exercise unless (1) the spread is small enough that the exercise + AMT cost is comfortably affordable, (2) you have at least 12-month visibility into a liquidity event, and (3) you'd be psychologically fine if the equity went to zero. The asymmetric downside of cash-out-of-pocket on illiquid private stock is the most under-appreciated risk in startup compensation.

Question 6

What is AMT and does it affect me?

Accepted Answer

AMT (Alternative Minimum Tax) is a parallel federal tax system that primarily affects high earners with large ISO exercises. When you exercise ISOs, the spread between your strike price and the fair market value is treated as AMT income — even though you haven't sold the shares yet. If that paper gain is large enough, you could owe AMT in the tax year you exercise, with cash you don't yet have. AMT typically comes into play when exercising tens of thousands of ISOs with a meaningful spread. This estimator does not model AMT — if you're considering exercising ISOs with significant intrinsic value, get a CPA to run an AMT projection before you exercise.

Question 7

How is RSU taxation different at private vs public companies?

Accepted Answer

At public companies, RSUs vest on a time-based schedule and are taxed as ordinary income on the value at vest. The company typically withholds shares to cover the tax. At private companies, RSUs almost always have a double-trigger: they require both time-based vesting AND a liquidity event (IPO or acquisition) before they become taxable. This protects employees from owing income tax on illiquid shares they can't sell. When the liquidity event happens, all of your vested-but-untriggered RSUs become taxable at once — which is often a very large ordinary-income tax bill in a single year.

What's your startup equity worth at IPO?

How this estimator works

What this tool deliberately does not model

How to read the three scenarios

Comparing offers? See the full comp picture.

Frequently asked questions