Owning equity in a startup can be an exciting opportunity, potentially turning a small stake into a significant payout if the company succeeds. However, as Ankur Nagpal (@ankurnagpal) highlighted in a recent tweet on July 8, 2025, even owning 5% of a tech startup that sells for $200M doesn’t guarantee a windfall. Liquidation preferences, dilution, and other factors can leave you with nothing. To protect your interests as an advisor or employee, here are five critical questions to ask before accepting equity:

1. What is the Total Liquidation Preference on the Company?

The liquidation preference determines the minimum amount a company must sell for before equity holders like you see any payout. This is often tied to the total money raised by the startup. For example, if the company has raised $200M or more, a $200M sale might leave nothing for common shareholders, including you. Ask for a clear breakdown of this figure to understand your position.

2. What is the Present Value of My Equity?

Companies typically provide the number of shares and your strike price (the cost to exercise options). To estimate your equity’s current worth, request the latest preferred price (the share price from the last financing round). Subtract your strike price from this value and multiply by your share count to calculate your potential gain today.

Tip: Use a startup equity calculator (e.g., from Carta) to model different scenarios based on this data.

3. What Percentage of the Company Do I Own?

Some startups hesitate to disclose this, but as an early-stage contributor, you deserve transparency. Knowing your ownership percentage helps you gauge your stake’s significance. If they won’t share it, ask for the total number of shares outstanding and calculate it yourself (your shares ÷ total shares × 100).

Caution: Lack of transparency here can be a red flag.

4. How Much Runway Do We Have Left? (Assuming No Revenue Growth)

Runway is the number of months the company can operate with its current cash reserves, assuming no additional funding or revenue growth. A runway under 12 months signals potential financial instability, which could jeopardize your equity’s value. Request this data to assess the company’s longevity.

5. What Would Make This Company a Success?

While it’s important to be cautious, optimism is key. Discuss potential exit scenarios ($100M, $1B, $10B) and estimate how your equity might grow with each outcome. Factor in dilution from future funding rounds to get a realistic picture. This exercise helps align your expectations with the company’s goals.

Pro Tip: Create a table or use a tool to visualize your equity value at different exit values.

By asking these questions, you can better evaluate the true value of your equity and make an informed decision. As Ankur and other experts suggest, treat equity as an investment, not a lottery ticket. If the startup avoids answering, it might be time to reconsider your involvement.

Original insight by Ankur Nagpal (@ankurnagpal) on X, July 8, 2025. Compiled by Grok 3, xAI, on July 10, 2025.