Three years later, when the company was acquired, I learned that those options were practically worthless due to a liquidation preference structure I had completely ignored. I had signed away my right to work for competitors for a year, and my "bonus target" was entirely at the board's discretion (meaning I never saw a dime of it).
Startup offer letters are not standardized like Big Tech offers. They are legal documents drafted by the company's lawyers to protect the company, not you. Here is a line-by-line guide on how to actually read one before you sign.
1. The Salary and Bonus Trap
What it says: "Your starting base salary will be $150,000 per year, paid semi-monthly. You will also be eligible for an annual performance bonus with a target of 15% of your base salary."
What it means: The base salary is guaranteed. The bonus is fiction until it hits your bank account. In early-stage startups, "eligible for" means exactly that—you are eligible, but the company probably won't pay it unless they hit aggressive revenue targets. If you need that 15% to make rent, you can't afford this job.
What to negotiate: If they lean heavily on the bonus to make the total compensation look competitive, ask for a guaranteed sign-on bonus instead. "I understand the performance bonus is discretionary. Given I'm walking away from a guaranteed bonus at my current role, could we convert half of that target into a guaranteed sign-on bonus?"
2. The Equity Reality Check
What it says: "Subject to the approval of the Board of Directors, you will be granted an option to purchase 10,000 shares of the Company's Common Stock. The options will vest over a four-year period, with a one-year cliff."
What it means: "10,000 shares" is a meaningless number without the denominator. 10,000 out of 1 million shares is 1%. 10,000 out of 100 million shares is 0.01%. Furthermore, you don't actually get these shares when you sign; you get the right to buy them at a specific price (the strike price).
The questions you MUST ask in writing:
- What is the total number of fully diluted outstanding shares?
- What is the current strike price (409A valuation)?
- What price did preferred investors pay in the last round?
If a recruiter refuses to give you the total outstanding shares, claiming it's "confidential," push back hard. It's impossible to value the offer without it. "I'm incredibly excited about the role, but I can't evaluate the equity component without knowing what percentage of the fully diluted cap table this represents."
3. The "At-Will" and Termination Clauses
What it says: "Your employment with the Company is 'at-will.' This means either you or the Company may terminate your employment at any time, with or without cause, and with or without notice."
What it means: This is standard in almost every US state. They can fire you tomorrow because they don't like your shoes. However, pay close attention to what happens to your equity if you are terminated.
Look for the Post-Termination Exercise Period (PTEP). Standard PTEP is 90 days. This means if you leave or are fired, you have exactly 90 days to come up with the cash to buy your vested options (and pay the taxes on them). If you don't have the cash, you lose the equity you earned. Progressive startups are moving to 5-year or 10-year PTEPs. If it's 90 days, you need to factor that risk into your decision.
4. The Restrictive Covenants (Non-Competes)
What it says: "During your employment and for a period of twelve (12) months thereafter, you agree not to directly or indirectly engage in any business that competes with the Company."
What it means: Non-competes are increasingly difficult to enforce (and outright illegal in places like California), but companies still put them in offer letters to scare you. If you're a specialist in a niche industry (e.g., fintech compliance), a broad non-compete could technically prevent you from working in your field for a year.
What to do: If you're outside California, ask to narrow the scope. Instead of "any business that competes," ask to specify direct competitors, or limit it to products you directly worked on. "I'm comfortable signing a non-solicit for clients and employees, but the non-compete is too broad for my career safety."
An offer letter is the starting point of a legal relationship. Take 24 hours. Read every line. If you don't understand a term, ask. The way a startup handles your clarifying questions about their offer letter tells you exactly how they will treat you as an employee.
