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You've been granted stock options at your venture-backed startup. The company is growing, the future looks bright, and you're wondering: should I exercise my options and buy my equity? It's one of the most important financial decisions you'll make as a startup employee, yet it's often shrouded in complexity and uncertainty and emotion.
You try to get information from the company.
CFO: - “No comment, I can't give you financial advice and the company's financials are confidential.”
Founder - “Listen, I think the company is great, we are in a good place, but I don’t know your specific financial situation. “
Work Bestie - “just don't ever leave. I don't want you to ever leave so stay and you don't have to buy your options yet.”
The simple answer is: it depends. The complete answer requires understanding of a lot of different elements, many of which you may never have perfect information for. Strike prices, liquidity preferences, tax implications, and your personal financial situation. This guide will walk you through every consideration to help you make an informed decision.
As an employee of a venture-backed company, you likely have stock options – Or RSU’s. Stock Options are the right to purchase shares at a predetermined price (your strike price) within a specific timeframe.
Your equity grant is the place this is usually laid out for you and typically includes:
Before diving into whether you should buy your equity, let's establish what you actually own. It is always worth starting to try and understand what a share is worth. You can try and aks the company but you can also jump onto our equity wealth valuation tool on our site here: https://aption.com/wealth/
The key insight many employees miss: having options doesn't mean you own equity. You only own equity after you exercise your options and purchase the shares. Once you purchase the shares it is similar to if you own equity of a company on the stock market, the only difference is you can’t sell them without the companies permission and there isn’t an open market for you to go to for pricing or liquidity. Any rights you have are usually handed over to the board by proxy. If you were granted your options under Section 102 in Israel, they are usually held by a trustee (think IBI, AltShare, Shareworks, etc..).
Your strike price is determined by the company and is usually listed in your option grant. It usually is designed to give a fair "fair market value" of the stock, when you join the company so that you are then rewarded for the increased value of the company during the time you worked there. It can be much lower than the preferred stock price investors pay especially if there is a round after you joined. Often at early stages the stock may even be further discounted below a recent investor round both as an incentive to employees and as it is common stock sits behind preferred stock in the liquidation waterfall – more on this critical point later. For many US employees or companies the fair market value of the company is determined by the 409A.
As you consider whether to exercise your options or not, it is worth trying to understand the current 409A price, or even get your hands on the 409A document.
Many startup employees assume that if the company is sold, their equity will automatically be worth a share of the exit price. But in venture-backed startups, liquidation preferences mean that investors get paid first—before any money goes to common shareholders (usually employees and founders). This can dramatically reduce the value of your stock in a low or moderate exit.
A 1x non-participating liquidation preference means investors get back what they invested—first—before common stockholders see anything. They don’t participate in the rest unless converting to common gives them more.
If the company sold for $50M or less, the entire amount would go to preferred investors, and common stock (your options) would be worth $0.
Exercising equity in a venture-backed startup—whether you're an Israeli or American—can trigger significant tax implications that depend on the type of equity (e.g., options vs. RSUs), the stage of the company, and your personal tax residency. In the U.S., exercising incentive stock options (ISOs) may lead to alternative minimum tax (AMT), while non-qualified options are taxed as ordinary income. In Israel, exercising options under Section 102 may offer favorable tax treatment if structured correctly. In many cases, taxes can arise long before any actual cash is received—making it critical to understand the timing, valuation, and potential upside versus risk before making any moves. Consulting a cross-border tax advisor is often essential to avoid unintended consequences.
Exercising your stock options can make sense in several situations—but it depends on your risk tolerance, personal financial situation, and expectations for the company’s future. Here’s a breakdown of when it might make sense to exercise:
Early Exercise Benefits:
Strong Company Performance:
Personal Financial Readiness:
Some red flags should make you pause:
Company Warning Signs and Personal Financial Constraints: For example:
Even when the math looks compelling—say you're paying $1 per share for equity that last priced at $20+—exercising your options isn’t always a no-brainer. If you're funding it yourself, you're locking up your own capital in a highly illiquid asset with no guaranteed path to liquidity and no control over when (or if) you can sell. Startups are inherently risky, and even by Series D, the odds of seeing a return are only around 40%. Moreover, exercising may leave you with an overconcentrated position that represents a significant portion of your net worth. That’s where tools like option financing and equity pooling come in—they can help you access the upside without taking on all the risk alone.
Option financing allows employees to exercise their stock options without using their own cash upfront. A financing company pays your exercise costs and taxes in exchange for a portion of your future equity value. This enables you to maintain larger equity positions without personal financial risk.
Equity in a startup can be a powerful asset—but also a concentrated, illiquid, and risky one. Here are several strategies to help protect and maximize its value:
Each of these approaches carries trade-offs, so the right strategy depends on your personal goals, the company’s outlook, and the terms of your equity.
Secondary equity sales make sense when:
Research secondary market valuations through:
Here's a systematic approach to evaluate whether you should buy your equity:
Step 1: Assess Your Financial Situation
Step 2: Evaluate Company Prospects
Step 3: Consider Alternative Strategies
Step 4: Model Different Scenarios
I would add an emotional aspect to this, you have worked for years at a company helping build it and there is something nice that if it does succeed you would like to see some reward for that hard work. I would always recommend keeping even a token amount for that success.
The decision to buy your equity isn't just about believing in your company – it's about making a smart financial decision that fits your personal situation. Many successful companies have made employees wealthy through equity participation, but many more have left employees with worthless options and unexpected tax bills.
Key takeaways:
The most important thing is making an informed decision that aligns with your financial goals and risk tolerance. Whether you exercise your options or not, make sure you understand what you're signing up for.
Remember: the best equity decision is the one that helps you sleep well at night, regardless of what happens to your company's valuation.
This article is for educational purposes only and does not constitute financial, legal, or tax advice. Please consult with qualified professionals before making equity-related decisions.
Aption provides financing solutions and advisory services for employees of venture-backed companies. Learn more about our equity financing options at aption.com.
Avi has over 15 years experience as a GM and CRO roles in companies such as SimilarWeb, and Lusha. He is also an early stage investor and advisors to many startups.