Quoting danluu :
There are a number of factors that can make options more or less valuable than they seem. From an employee standpoint, the factors that make options more valuable than they seem can cause equity to be worth tens of percent more than a naive calculation. The factors that make options less valuable than they seem do so in ways that mostly aren’t easy to quantify.
Whether or not the factors that make options relatively more valuable dominate or the factors that make options relatively less valuable dominate is an empirical question. My intuition is that the factors that make options relatively less valuable are stronger, but that’s just a guess. A way to get an idea about this from public data would be to go through through successful startup S-1 filing. Since this post is already ~5k words, I’ll leave that for another post, but I’ll note that in my preliminary skim of a handful of 99%-ile exits (> $1B), the median employee seems to do worse than someone who’s on the standard Facebook/Google/Amazon career trajectory.
From a company standpoint, there are a couple factors that allow companies to retain more leverage/control by giving relatively more options to employees and relatively less equity to investors.
All of this sounds fine for founders and investors, but I don’t see what’s in it for employees.
Unless of course they dilute your shares in the next round of raising, which they probably will do. So your 5% stake becomes 0.5% when they give themselves another x amount of shares and you get nothing.
Additionally, large investors routinely chastise founders for having "messed up cap tables" where there's lots of individual holders of Class A stock that conceivably should have a say in how the company is run.
Good luck in your hunt!
It's quite an interesting deception if it isn't explained transparently!
Early stage startup "equity" is worthless.
In 5-10yrs you'll be giving this advise to new wave of enthusiastic developers bought for lots of "equity" and little cash.
Use your FB salary and fly to Vegas. You'll have better return on investment than from average startup equity performance.
If you're getting a salary either freelance or FT, it's unlikely you'll get more than 10%.
Rule of thumb is that giving equity increases valuation by 1/(1-x). So a 5% share should increase speed/valuation by 5.6%.