Mind the Gap: Equity Education in Tech Startups

We recently surveyed 247 startup employees and alumni in the ESO Fund community. These are folks with experience at venture-backed startups, whether they’re still there or have since moved on. The goal? See how people really feel about their equity, and how well they understand it.

The good news? People value equity. The bad news? Most don’t feel confident managing it.

How Much Do People Value Their Equity?

We asked, “How valuable was your equity when you joined the company?” (0 = not at all, 10 = major reason you joined.)

The average answer: 6.1
In other words: “It mattered… but wasn’t everything.”

Executives put more weight on their equity, which makes sense, while many rank-and-file employees saw it as a nice-to-have, not a must-have. Overall, none of this was surprising as equity is important (especially at a startup), but shouldn’t be the end all be all when joining a company (we were hoping for closer to a 7).

Who Negotiates Equity? Mostly Execs.

A simple question: Did you negotiate your equity package?

71% of execs said yes, but only 32% of engineers did.

That’s a huge gap. Nearly half of all respondents said they negotiated, but when you zoom in, it’s clear that knowledge (and leverage) isn’t evenly distributed. Yes, execs are more likely to get what they want, but you don’t get what you don’t ask for. Just like salary, equity is something you should be prepared to negotiate.

This issue here lies in the fact that people don’t know how to understand their equity package in an offer. Number of shares, strike price, percent ownership: all are useful, but without public benchmarks none of these are super helpful.

The Education Gap Is Real

Only 41% said they felt very educated about how their equity works. Among engineers, that dropped to 31%. It tracks that it is not being negotiated upon if most people don’t have a solid understanding of how it works. 

Astonishingly, 17% didn’t even know about the 90-day expiration rule on ISOs. At ESO Fund, we’ve talked to plenty of people who learned about the rule with just a few days left, so we weren’t exactly surprised. Still, nearly 1 in 5 missing such a critical detail is hard to ignore. Much to our chagrin, just 46% had heard of third-party funding options (like ESO Fund).

Based on the lack of education on the subject, it’s no surprise that 67% said they felt “somewhat” or “not at all” confident navigating their options. Most people don’t have a solid grasp on how their equity works, and more than half didn’t know that they could get help funding the cost of exercise.

While ESO Fund and others like Carta are doing our part to raise awareness, we found that just 1 in 3 respondents said their company offered any education around stock options. In reality, there isn’t much incentive for companies to educate their employees on the matter. At the end of the day, an unexercised expired option simply goes back into the company’s option pool to be dangled to the next new hire.

Still, People Are Exercising

Despite the confusion, most of our respondents have taken action:
76.5% said they’ve either already exercised or plan to in the future. That’s way higher than the ~30% exercise rate Carta reports. It likely reflects who we talk to: people who believe in their company and want to unlock their upside.

What This Tells Us

Equity is confusing. It’s rarely explained well. And most employees don’t know what’s negotiable, what’s at risk, or what tools are out there to help.

This isn’t a pitch. It’s a nudge for everyone to get more proactive. For employees to ask better questions, and for companies to make equity education more accessible. It’s also a reminder that we have more work to do in getting the word out about our resources and how we can help.