I don’t mean to be terribly cynical, but wouldn’t it be just as effective to simply ignore equity entirely when evaluating a startup offer?
An offer from an established company has a fairly clear value - a chunk of cash and some relatively-well understood stock. A startup offer amounts to a chunk of cash and a box of lottery tickets. Given the wide variety of possible outcomes, it’s essentially impossible to assign any value to them - so they might as well not exist for the purposes of evaluation.
I tend to think of this kind of choice as one that you’d make based on the company and work environment, rather than the compensation - so long as the startup can pay enough cash to maintain a standard of living you want. Then it’s a case of deciding if the work environment, team, product, mission etc. are something in which you’re interested enough to give up the stability and income from an established company. If it does work out and you get rewarded through an exit, then that’s great! But if you’re going in to it with the expectation of becoming wealthy, you’re almost certainly going to be disappointed.
I agree, you should join a startup for the experience of it rather than the risky upside. If you're leaving another company with an equity component, though, it's a good idea to try and quantify your options. Ideally you are lucky enough to find a company that will both definitely give you the work environment you want, and probably make you wealthy.
For a small startup, I recommend asking the CEO tough questions about the viability of the business and planned exit strategy. If they get upset about it, walk away. If they don't get upset, that's good. At that point, ask them to get you in contact with an early investor to ask them questions. If they aren't willing to do that, then walk away. Once you do have an offer, do an analysis. Unless you think they are giving you an abundance, then do a round of negotiation. Negotiating can only help you. Keep it fair and reasonable, though. If it's your first job and you have no experience, for example, don't expect them to budge much if at all.
That’s what I’m doing. Previously worked at a stable mid size company and I wanted to try a startup. The comp and other benefits were already pretty far above my stable company, so if I get anything from the equity it’s a bonus.
I feel a little dumb for not digging harder but the offer was already a big improvement.
This is the right way to think about it because at the end of the day startup success is rare.
That doesn’t mean you shouldn’t due your due diligence and get all the info you can before joining a startup. IMHO the most important thing is the character and financial savvy of the founders, because it’s one thing to fail but it’s another thing to essentially succeed but then get screwed because of investor shenanigans. The founders are your only hope against this scenario.
An offer from an established company has a fairly clear value - a chunk of cash and some relatively-well understood stock. A startup offer amounts to a chunk of cash and a box of lottery tickets. Given the wide variety of possible outcomes, it’s essentially impossible to assign any value to them - so they might as well not exist for the purposes of evaluation.
I tend to think of this kind of choice as one that you’d make based on the company and work environment, rather than the compensation - so long as the startup can pay enough cash to maintain a standard of living you want. Then it’s a case of deciding if the work environment, team, product, mission etc. are something in which you’re interested enough to give up the stability and income from an established company. If it does work out and you get rewarded through an exit, then that’s great! But if you’re going in to it with the expectation of becoming wealthy, you’re almost certainly going to be disappointed.
YMMV of course, I’m personally quite risk-averse!