What is dilution and how does it affect my equity?

Dilution occurs when a company issues new shares — in future funding rounds, for ESOP pools, or for acquisitions. Each new share reduces your ownership percentage. A 10,000 share grant at Series A might represent 0.2% today but 0.08% by IPO after multiple rounds of dilution.

What is a 1-year cliff in vesting?

A 1-year cliff means you receive 0 shares if you leave before completing 12 months. After the cliff, shares vest monthly or quarterly for the remaining period. If you leave on day 364, you get nothing. Day 366, you get 25% of your total grant.

How is ESOP taxed in India vs RSU?

In India, ESOPs are taxed as perquisite (income tax slab rate) at exercise, then as capital gains at sale. RSUs are taxed as perquisite at vesting (when shares are delivered), then capital gains at sale. Listed company shares held over 12 months attract 12.5% LTCG above ₹1.25L.

Should I exercise my ESOPs before leaving a company?

Yes, typically. Most ESOP agreements give you 90 days post-employment to exercise. If you don't, you forfeit the options. Exercise before you leave (or immediately after) to avoid losing your vested shares. Consider the cash required and tax implications before exercising.

ESOP & RSU Equity Analyser — Real Exit Value

What You'll Get — Sample Output

Here's an example output for a Senior Engineer with 10,000 ESOPs at a Series B startup valued at ₹500Cr:

3× Exit

₹28L

after dilution & tax

5× Exit

₹52L

after dilution & tax

10× Exit

₹1.1Cr

after dilution & tax

Dilution Impact:
Your 0.12% ownership today → 0.05% at IPO (after 2 expected rounds at 20% dilution each). This reduces your effective grant value by ~58%.

AI Verdict:
At a 5× exit, your equity is equivalent to ~1.7× your annual CTC. The equity is meaningful but not life-changing — only a 10× outcome materially changes the calculus. The base salary reduction to accept this offer is not justified unless you believe a 7× exit is plausible in 4–5 years.

Vesting Check:
You cross the 1-year cliff in 11 months. 25% vests then. If you leave before month 12, you forfeit 100% of this grant.

Frequently Asked Questions

What is dilution and how much should I expect?+

Dilution occurs when a company issues new shares in future funding rounds, reducing your ownership percentage. A typical Series A/B round dilutes existing shareholders by 15–25%. This tool assumes 20% dilution per future round. After 2 rounds, a 0.1% grant effectively becomes ~0.064%. Anti-dilution clauses (rare for employees) can protect against this.

What happens to my ESOPs if I leave before the cliff?+

You forfeit 100% of your unvested options. A standard vesting schedule has a 1-year cliff — meaning you must complete 12 months before any shares vest. If you leave on day 364, you get nothing. After the cliff, remaining shares vest monthly or quarterly over the remaining 3 years of a 4-year schedule.

How is equity taxed in India?+

There are two tax events: (1) At exercise/vesting — the spread (FMV minus strike price for ESOPs, or full FMV for RSUs) is taxed as perquisite income at your slab rate. TDS is deducted by your employer. (2) At sale — gains from the vesting price to sale price are capital gains — LTCG at 12.5% (if held 12+ months for listed companies) or STCG at 20%.

Should I negotiate for more equity or a higher base?+

It depends on your financial situation and risk tolerance. For most mid-career engineers in India, a higher base is more reliable — it compounds into PF, gratuity, and future salary negotiations. Equity upside requires an exit event that may never come. A good rule: treat equity as a lottery ticket. If the base salary is strong without the equity, then equity is upside. If you're taking a base salary cut for equity, that's a risk worth quantifying with this tool.

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