How to Make a Million Through Startup Equity and RSUs

How this path actually works

Companies pay part of your compensation in equity — RSUs (restricted stock units) at public companies, and stock options or shares at startups. This is how a large share of tech millionaires actually got there — and it is rarely discussed as a "path." It is also highly concentrated risk: most startup equity ends up worth zero.

The two flavors behave very differently. RSUs are shares that vest over time — when they vest, they are yours, taxed as ordinary income. Stock options are the right to buy shares at a strike price, which only has value if the share price rises above that strike.

The math

Option value at exercise:

The catch is what "fair market value" really is. For private companies, it is set by a 409A valuation — often far below what investors paid. And even a headline "$1B exit" can pay common shareholders (you) far less than expected, because of dilution and the liquidation preference stack: preferred investors get paid first, sometimes at a multiple, before common shareholders see a dollar.

RSUs are simpler: vest, sell, diversify. A $400,000 RSU grant over four years is $100,000/year of (taxable) income. Whether that becomes wealth depends on whether you diversify it or hold it all in your employer's stock.

The honest route

1. Value the offer correctly — assume most private equity is worth $0 until it is liquid.
2. Understand your vesting schedule and cliff before you count the equity as income.
3. Sell RSUs on vest and diversify by default. This is the single most important rule.
4. Know the tax treatment before exercising options — ISO exercise can trigger AMT.
5. Do not concentrate your net worth in the company that also pays your salary.

What the data says

• The vast majority of startups fail or never reach a liquidity event — most startup equity is worth zero.
• RSUs at established public companies are a far more reliable wealth engine than startup options.
• The most common wealth-destroying error among tech employees is not diversifying — holding a concentrated position that later drops.

Who this works for — and who it doesn't

Works for: people in tech-adjacent roles at companies that grant meaningful equity, who understand the instruments and diversify by default.

Doesn't work for: anyone who counts illiquid paper as net worth, anyone who refuses to diversify, or anyone who stays at a job solely for equity that never liquidates.

Common ways people fail here

• Treating illiquid paper as net worth — it is not money until it is liquid.
• AMT surprises on ISO exercise — the tax bill can arrive before the liquidity.
• Not exercising before expiry — options have a clock.
• Refusing to diversify — job + portfolio in one company is correlated risk.
• Staying for equity that never liquidates — trading years for a lottery ticket.

Costs and taxes

RSUs are ordinary income at vest (withholding is typically automatic). Options: exercising ISOs can trigger AMT; an 83(b) election can be valuable but must be filed within 30 days of grant; and the eventual sale is taxed as capital gains or ordinary income depending on holding period. This is one of the most tax-sensitive areas on the site — professional advice is genuinely warranted.

Run your own numbers

Equity compensation is income — and like any income, it builds wealth only when invested. Model what your vested (and diversified) proceeds become. (A dedicated equity-comp calculator ships in a later version.)

Enter your numbers to see the math.

Combining this with other paths

Equity compensation is really a turbocharged high-income career. The playbook is identical: convert the income into index investing as fast as it vests.

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