Should I choose RSUs or Stock Options at a startup?

The Golden Handcuffs Dilemma

Ashley stared at a PDF document on her laptop screen. The glow of the monitor was the only light in her apartment.

She was looking at an offer letter from a Series D startup. This was the job she wanted. The work was exciting and the team was brilliant. But the compensation section was a choose-your-own-adventure puzzle.

They gave her three choices.

Option A was 100 percent Stock Options. Option B was 100 percent RSUs. Option C was a mix.

She felt paralyzed.

If she picked the options and the company failed to exit, she could end up with nothing. If she picked the RSUs and the company became the next unicorn, she feared she would leave $$$$ on the table.

This is the exact moment where most tech professionals freeze.

We saw this panic set in during the private tech market corrections of 2023 and 2024. For a decade, stock options were king. But then valuations got cut and down rounds happened. Suddenly, the safety of RSUs looked very attractive.

When this situation happens to you, you need to stop guessing and start calculating.

How Do I Choose Between Leverage and Safety?

I’ve spoken to a few people in situations where they need to choose, and the most common question is: if the company exits successfully, which equity type puts more money in my pocket?

Here’s the answer based on how the math works.

Stock Options offer leverage. They have the potential to dramatically outperform RSUs if the company valuation grows significantly above the current valuation (remember that new stock options are issued at the current fair market value).

RSUs offer floor protection. They retain value even if the stock price stays flat or drops, whereas options can go underwater (i.e., become worthless).

The better choice depends on your growth assumptions.

Let me explain how leverage works.

When you get stock options, whether you hold ISOs or NSOs, understanding the mechanics is key. You’re not getting the stock but are getting the right to buy the stock later at a fixed price. That is your strike price. If the company grows, the gap between your lower strike price and the higher exit price is your profit.

RSUs are different. They’re a grant of the full value of the share. You don’t pay for them. They always have value unless the company goes to zero.

Think of it like this: to justify taking Options over RSUs, the company usually needs to grow by a specific multiple. We call this the break-even growth rate. If you don’t believe the company will triple in value or more, RSUs can be mathematically superior, but it depends on the ratio of stock options vs RSUs (many companies will offer you fewer RSU shares than options, since they know the RSUs will hold their value better).

The case study below will offer insight into how we think about this tradeoff.

This case study visualizes the crossover point.

At a 30-dollar per share exit, the 100 percent RSU package in grey wins (slightly). The options have not gained enough value to beat the intrinsic value of the RSUs.

But look at the 120 dollar per share exit. The 100 percent Stock Options package in yellow takes off. In this model, it generates nearly +200,000 dollars in additional potential value compared to the RSUs.

That’s the power of leverage. But remember, leverage works both ways. You have to decide if you’re betting on a base hit or a grand slam.

The Tax Bomb Factor

The next question you have to ask is about cash flow. How do taxes impact my wallet before I can sell the stock?

Here’s the general rule.

RSUs at private companies can be risky if they’re “Single Trigger”. You typically owe income tax the moment they vest. This happens even if you can’t sell the stock to pay the bill.

Options generally allow you to defer tax until you choose to exercise (though AMT rules may apply).

Let me break that down.

Public company RSUs are easier to understand. As we discussed in our guide on tax implications for RSUs. They vest, you sell some to cover taxes, and you keep the rest.

Private company RSUs are trickier. You can’t sell them on the stock market because there’s no public market yet.

If your grant agreement indicates it’s a Single Trigger RSU (not common, but it happens), you generally owe the IRS money as soon as the time requirement is met. You could owe thousands of dollars in taxes on stock that you cannot convert to cash.

Most late-stage private companies now use Double Trigger vesting. This means you do not owe taxes until two things happen. First, you stay long enough to vest. Second, a liquidity event occurs, like an IPO or acquisition.

Again, with options, you have more control. You generally do not owe tax until you exercise. You can wait to exercise until you know an exit is coming, but you need to have an exercise strategy. This is critical because of the strict timelines that occur when leaving a job.

FAQ

Can I negotiate the ratio of RSUs to Options?

Sometimes. Not all companies offer you a choice between RSUs and options. It’s typically reserved for later-stage private companies. Companies often have an exchange ratio. For example, they might trade one RSU for three Options. This allows you to toggle the offer based on your risk tolerance.

What happens to my equity if the company raises a down round?

This is the risk of leverage. Options can go "underwater." That means the current value drops below your strike price. They become worthless, but RSUs will retain some value. They are worth less than before, but they are not zero.

Why do early-stage startups almost exclusively offer Options?

It comes down to price. The strike price at an early startup is low (sometimes even a few pennies). In those cases, options act almost like free stock. The company wants to preserve cash while offering you massive upside potential if they make it big.

Your Next Steps

You cannot make this decision based on a gut feeling. If you’re being put in a situation where you need to decide between options and RSUs, you need a decision framework.

1. Request the Exchange Ratio and Strike Price. You can’t do the math without the variables. Ask HR for the current Strike Price for the options and how many RSUs they’re offering vs options.

2. Run the 3 Scenarios Test. Create a spreadsheet. Model three exit scenarios.

   • Flat: The company sells for the current valuation (0 percent growth).

   • Moderate: The company triples in value (3x growth).

   • Moonshot: The company becomes a unicorn (10x growth). Compare the potential net value of the RSU package against the Option package in each column.

3. Check the Trigger Language. If you choose RSUs at a private company, read the fine print. Ensure they are Double Trigger. You want vesting plus a liquidity event. Don’t sign up for a surprise tax bill you can’t pay.

4. Assess Your Cash Reserves Options are not free. To exercise them, you have to buy them. Ensure you have enough liquid cash to cover the exercise cost plus potential taxes. If you’re cash poor, RSUs may potentially be the safer bet.

Meme of the Week

Don't Guess with Your Net Worth

The choice between RSUs and Options comes down to your belief in the company and your ability to stomach risk. Options are for optimists seeking leverage. RSUs are for people seeking security.

Staring at an offer letter and unsure which path leads to your financial freedom? Schedule a free consultation to see if you’re thinking of it the right way.

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Marcel Miu, CFA and CFP® is the Founder and Lead Wealth Planner at Simplify Wealth Planning. Simplify Wealth Planning is dedicated to helping tech professionals master their money and achieve their financial goals.

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