Startup Equity Is Not Cash and AI Bubble Makes It Worse
Startup Equity Is Not Cash and AI Bubble Makes It Worse
Author: Peter Walker
Read time: 2 minutes
Published date: September 13, 2025
As AI valuations inflate equity offer values, employees and founders are tempted to trade real salary for notional equity—a dangerous mistake in early-stage...
Startup equity is not cash.
Obvious! But we see early-stage founders and HR get ahead of themselves on this all the time.
The AI bubble has only made it worse. With valuations getting wild, employees can be dazzled by equity offers expressed as massive dollar figures...but ask a few startup folks who joined rocket ships in 2021 how often those numbers actually hit the bank account.
Okay: you're a Series A founder (company valued at $60M) and you're trying to close an amazing engineer. In her offer, you list the base salary, any potential bonuses, and the equity options package (Incentive Stock Options or ISOs).
It's easy to write that offer as:
- Annual base salary: $153,000
- Potential bonus: Up to $8,000
- Equity: Annual value of $26,000 ❌
But it should actually read:
- Annual base salary: $153,000
- Potential bonus: Up to $8,000
- 4-Year Equity Grant: 15,000 options which represent 0.054% of fully-diluted shares + a link to a scenario model the employee can utilize to project the future
Is that as easily understandable as the dollar amount? No! But it's far more honest.
Expressing equity in dollar terms should be reserved for startups that are valued at hundreds of millions of dollars - because the modal outcome for Series A equity is $0. It's why the discussion of "what % of my compensation is equity vs cash" can be quite misleading at young companies.
Besides share count and % ownership, candidates should also ask:
Funding: What is the post-money valuation of the company? When did that round take place? Has the company had to raise any convertible bridge financing since then? Are there plans to raise more capital?
Equity details: What is the current strike price? What is the vesting period? What is the post-termination equity period for these options (typically they'll say 90 days after you leave, which is..not a lot! Could be a negotiation point for you to push on).
One final question: When this company goes public or gets acquired, what's the minimum valuation it needs to achieve for common stock to make a profit?
Venture-backed dollars can come with strings attached. Those strings (liquidity preferences, participating preferred, etc) can make it harder for employees to get any real value out of their equity EVEN WHEN the company exits. This question may not be something a recruiter can answer.
Remember: equity is not cash. It's upside only.
The more you know.