Restricted Stock Unit (RSU)
Definition
An RSU is a promise from a company to deliver a share of stock, or its cash equivalent, to an employee once a vesting condition is met, rather than granting an option to purchase stock at a set price.
How it comes up in fundraising
Later-stage and public companies favor RSUs over stock options because they hold real value even if the stock price falls, unlike an option that can end up underwater; early-stage startups mostly stick with options instead.
Frequently asked questions
How are RSUs taxed differently from stock options?
RSUs are taxed as ordinary income on the fair market value at vesting, with no purchase decision required, while options are only taxed when exercised and can qualify for more favorable capital gains treatment.
Why do most early-stage startups grant options instead of RSUs?
RSUs create a tax bill at vesting even before the shares are liquid, which is painful at a private company with no market to sell into. Options let employees choose when to exercise and trigger tax.
Round Funded resources
Put this term to work
Definitions win negotiations only when you are in one. Find the investors who fund your stage and start the conversation.
Browse the investor database