Equity dilution and vesting
By Offer Unpacked · Updated
Separate the size of an equity award, the vesting schedule, purchase costs and potential liquidity. A share count alone does not show ownership or cash value.
Educational guide prepared with AI assistance. No independent legal review is claimed. How these guides are prepared.
Ask for the denominator and the timeline
Ask for the fully diluted share count used to explain the grant and the date of that figure. Record whether the award is approved or merely proposed, when vesting begins and whether there is a cliff. Clarify the treatment of leave and departure.
Model dilution as an assumption rather than a prediction. A future financing can change ownership percentages, and different share classes can have different economic rights. Avoid equating the price paid by an investor with money you could receive for employee shares.
Illustrative example
A fictional award of 10,000 shares against 1,000,000 fully diluted shares represents 1% on that stated basis. If the denominator later becomes 1,250,000 with the award unchanged, the arithmetic becomes 0.8%.
The example explains dilution only; it does not establish a valuation, proceeds or the treatment of a specific share class.
What to look for
- Share count without fully diluted percentage
- No grant-approval timeline
- Acceleration terms missing from the offer
Questions to ask
- What fully diluted ownership does this represent today?
- When will the board approve the grant?
Source and scope
IRS — Stock optionsU.S. tax background if the award is an option; the illustrative ownership calculation is not tax guidance. Examples and preparation questions are illustrative editorial content, not conclusions supplied by the source.
Your next step
Request the grant type, fully diluted denominator, approval timing and vesting schedule together.