Stock Options 101

Most startups will balance annual salary with stock options to help protect their funding 'runway' (the amount of money / time they have until they have to raise again), and to encourage you to (literally) buy-in to the journey.

They have the potential to turn into a significant amount of cash, but with 90% of startups failing within 5 years, you can't bank on it.

Generally options are on a 4 year vesting period with a 1 year cliff. This means that after the 1st year you get 25% of the options offered when joining, and then 2% every month for the next 3 years until they are 'fully vested.'

Even then though they are not really your's until some kind of exit event (the company is bought or goes public). At that point the options are bought by you, at their value when you joined the company, and sold at their value on the date of the exit, in a single transaction. You get to take home the difference.

Over time the stock may/will become diluted when the company raises more money or opens up the pool of stock for employees. This reduces individual share value at the time, but obviously the hope is that it enables them to go on to be worth more in the future.

Some companies allow you to buy stock that hasn't vested if you leave before the 4 year term is up. At that point you effectively become an investor in the company.