Equity is often the largest and least understood part of a senior offer at a private biotech. Candidates who would never accept a salary without knowing the currency will sign an option grant knowing only the number of shares. Yet the number of shares is the least informative figure in an equity offer. The questions around it are where the value is decided.
Nothing here is legal, tax, or financial advice, and the details of any grant should be reviewed with your own advisors. The questions below are reasonable to ask of any company, though, and how a company answers them is useful information in itself.
What you are being granted a share of
Start with the denominator. A grant of 100,000 options means one thing at a company with 20 million fully diluted shares and something very different at a company with 200 million. Ask for the fully diluted share count, which should include issued shares, outstanding options and warrants, and the unallocated option pool.
- How many fully diluted shares are outstanding today, and what percentage of the company does this grant represent?
- What is the strike price, and when was the most recent 409A valuation completed?
- What price per share did investors pay in the most recent preferred financing?
- Is the option pool expected to expand before or during the next financing, and how would that affect existing holders?
A gap between the 409A value of common stock and the price investors paid for preferred stock is normal. Preferred shares carry rights that common shares do not. Understanding that gap keeps you from treating the preferred price as the value of your options.
What sits ahead of you
In an acquisition or other exit, preferred shareholders typically receive their liquidation preference before common shareholders receive anything. At a high level, you want to know how much capital has been raised, whether the preferences are participating or non-participating, and whether any series carries a multiple above one times. Together, these determine how large an exit needs to be before common stock is meaningfully in the money.
Many companies will not share full capitalization detail with candidates early in a process, and that is a reasonable position. At the offer stage, a company that wants you should be willing to walk through the structure in enough detail for you to model a few outcomes. Reluctance at that point is worth weighing.
How and when it becomes yours
Vesting schedules at private biotechs commonly run four years with a one-year cliff, but terms vary, and senior offers are often negotiated. Ask about each of the following.
- Acceleration: whether any vesting accelerates on a change of control, and whether it is single-trigger (on the transaction) or double-trigger (on the transaction plus a qualifying termination).
- Exercise window: how long you have to exercise vested options after you leave. A short window can force a difficult decision about paying to exercise, and possibly paying tax, on stock you cannot yet sell.
- Option type: whether the grant is made up of incentive stock options (ISOs), non-qualified stock options (NSOs), or a mix, since the tax treatment differs.
- Early exercise: whether you can exercise before vesting and, if so, whether an 83(b) election makes sense for you. The filing deadline is short and strict, so raise it with a tax advisor early.
The number of shares is the least informative figure in an equity offer. The questions around it are where the value is decided.
What happens after you join
An initial grant is a snapshot. The company will raise more capital, issue more shares, and in most cases dilute every existing holder. That is not a cause for concern on its own. Dilution that funds a successful Phase 2 readout can leave you with a smaller share of something far more valuable.
What matters is how the company thinks about the years ahead. Ask how much runway the current financing provides and which milestone the next raise is expected to fund. Ask whether there is a refresh grant philosophy, and how it applies to senior leaders once their initial grants are substantially vested. Companies that have thought this through usually answer clearly. Companies that have not may still be good places to work, but you will be negotiating retention later from a weaker position.
Finally, place the equity in context with the rest of the offer. A higher base salary with a modest grant may suit someone who values certainty. A larger grant with a lower base may suit someone with conviction in the science and the capacity to absorb risk. Neither choice is wrong. The mistake is choosing without understanding what you are choosing.
Ask the questions early, ask them plainly, and expect clear answers. Good companies welcome them, because they would rather hire someone who understands the bargain than someone who discovers it later.
