Key Takeaways
- Stage predicts instrument: restricted stock at formation, ISOs through the growth years, RSUs once valuations make strikes unaffordable.
- Each type has one decisive moment: 83(b) for restricted stock, exercise strategy for options, sell-or-hold at liquidity for RSUs.
- Evaluate any grant by asking what you must pay, when you are taxed, and what happens if you leave.
Startup equity arrives as one of three instruments, and which one depends mostly on the company's age: founders and first hires get restricted stock while shares are near-worthless, employees through the growth years get incentive stock options, and once the 409A valuation makes strikes painful, companies switch to RSUs. Same company, same upside story, completely different taxes, cash requirements, and decision points.
Here is the side-by-side that lets you evaluate whatever your offer letter contains.
Restricted Stock: Shares Now, One Decision
You receive actual shares subject to vesting, common only when share value is tiny, at formation or seed stage, because you (or the tax code) must account for their value on receipt. The single decisive act is the 83(b) election within 30 days: file it and today's negligible value is your taxable event, starting the capital-gains and QSBS clocks immediately; miss it and every future vest is ordinary income at appreciated prices. Leave early and unvested shares are repurchased, usually at cost. Risk profile: minimal cash in, tiny early tax, forfeiture if the tenure is short.
Options: Leverage with Homework
ISOs (and sometimes NSOs) grant the right to buy at a fixed strike, no tax at grant, decisions concentrated at exercise. The variables that matter: strike versus current 409A (your embedded spread), the post-termination window (90 days standard, longer is a real perk), early-exercise availability (which reopens the 83(b) route), and AMT exposure on exercised spread, all covered in the exercise framework. Options demand the most active management of the three: cash to exercise, tax modeling, and a deadline every time you change jobs. Their compensation: the leverage, you control shares worth multiples of what you spend.
Try it: the free The Wealth Checkup takes a couple of minutes and shows you where you stand. Or explore equity & business at Attend.
RSUs: Simple, Taxed, and Back-loaded
Late-stage private RSUs typically carry a double trigger: time vesting plus a liquidity event, so nothing is taxed (or owned) until an IPO or acquisition, at which point accumulated vests convert to a large wage-income event all at once, the scenario planned for in the IPO checklist. No cash outlay, no elections, no AMT, and correspondingly no capital-gains conversion on the vest-date value and no QSBS. The planning is all downstream: withholding gaps, concentrated stock, and the expiration risk that double-trigger RSUs quietly carry if no liquidity event occurs within their term.
Reading Your Own Offer
Whatever the instrument, extract the same facts: shares and percentage of fully diluted ownership, vesting schedule and cliff, what you pay and when, the tax events and their timing, and the departure consequences, forfeiture, repurchase, or a ticking window. Then weigh the grant with offer-negotiation math: heavily discount private paper, negotiate size and bridges, and calendar every deadline the instrument creates. Equity is a contract first and a dream second; read it in that order.
Attend reviews grants and models the scenarios inside equity planning, from first offer through exit.
Frequently Asked Questions
Which equity type is best?
For the holder: restricted stock with an 83(b) at trivial value is the cleanest tax outcome; options add leverage with homework; RSUs trade tax efficiency for simplicity and certainty of value. But you rarely choose, stage does.
What is a double trigger and why do RSUs have it?
Vesting requires both time served and a liquidity event, which spares private-company employees from owing tax on shares they cannot sell. The cost is a compressed, large income event at IPO or acquisition.
My options are underwater. Do they matter?
Underwater options still have time value and reprice possibilities (companies sometimes exchange or reprice grants). They cost nothing to hold; just do not count them in your net worth at face.
Tony leads Attend Wealth, a fee-based wealth management firm in Atlanta serving professionals, families, and business owners. Advisory services are held to a fiduciary standard. More about Attend
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