One per cent sounds precise. It may not be.
Before comparing the percentage, ask what you are being offered. Shares, options and a contractual bonus linked to company value are not interchangeable. An option may give you a right to buy shares later under particular conditions. It is not the same as cash in your account.
The documents matter more than the conversation about how large the company could become. Employee share arrangements can also have specific Australian tax consequences. Check the current rules and obtain advice for the actual scheme.
Ask what the denominator includes
A percentage only makes sense beside the total it refers to. Does the stated ownership include existing options, convertible instruments and a planned employee pool? Is it expressed before or after an expected fundraising round?
Request the number of instruments offered and a clear explanation of the fully diluted calculation. Do not assume two offers using the same percentage use the same denominator.
An illustrative dilution example
Suppose a company has ten million shares on a simplified fully diluted basis. Your entitlement is one hundred thousand shares, equivalent to 1%.
The company then issues 2.5 million new shares. Ignoring other changes, your one hundred thousand shares become 0.8% of the 12.5 million total. The number you hold has not changed. The denominator has.
This is an arithmetic example, not a forecast or a claim about standard deal terms. In real arrangements, conversion terms, option pools and different share classes can change the calculation.
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Check when the entitlement becomes yours
Read the vesting schedule, any cliff, performance conditions and what happens when employment ends. Ask about exercise deadlines and whether cash is required to exercise options. Understand which rights have vested and which can lapse.
Do not assume that completing a year guarantees the same outcome across schemes. Do not treat a future entitlement as available savings. You may not be able to sell it when you need money.
Valuation is not the same as your proceeds
A funding announcement might quote a company valuation. Multiplying it by 1% does not establish what you could receive. The headline may be pre-money or post-money. Investors may hold different rights. Debt, preferences, transaction costs, tax and exercise costs can affect proceeds.
Consider downside cases as well as a successful exit. What happens if there is no exit for years? What cash salary or other opportunity are you giving up? What information will you receive while holding the interest?
A qualified legal, tax or financial adviser can help with the terms relevant to you. General business education cannot decide whether a particular offer is appropriate.
Put the questions in writing
Ask for the plan rules and offer documents before accepting a headline explanation. Request answers about the instrument, ownership calculation, vesting, exercise, dilution and exit rights. Keep the answer linked to the document that supports it.
The most useful result of this lesson is not deciding whether 1% is good. It is being able to say, "Here is what I own or may earn, here is what could change, and here is what I still need explained."
Your next action
Create an equity-offer question sheet using fictional numbers or your adviser-approved documents. Mark each item confirmed, unclear or not applicable. Do not upload private cap tables or offer documents into public tools. Take unresolved tax and legal questions to a qualified adviser.
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Lesson: Is 1% startup equity good? Questions to ask before valuing an offer. Please do not include confidential client, financial, health or staff information.
Questions this lesson answers
Is 1% equity in a start-up good?
It depends on the instrument, stage, salary trade-off, vesting, dilution, rights and realistic exit possibilities. A percentage alone is not a valuation or a reason to accept an offer.
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