Equity for employees is commonly part of an employment package, but:
1. It's rare for startups to succeed
2. It's rare for non-owning employees to be able to exercise shares/receive money when the company sells due to the structure of VC-backing/ownership and the resulting order of who gets paid/when
We all hear stories about when employee equity does not work out. Are there any examples of when it DOES work out well for an employee with equity?
1. I quit an engineering job at a bigco to become engineer #2 (employee #3) at a startup where I was given about 1.5%. I joined just after their initial fundraise.
2. I took a huge pay cut - from $120k in total comp at bigco to $60k at startup.
3. The startup was acquired roughly 2.5 years later by a larger startup, my pay went up to $140k and my options converted to roughly 0.1% of the larger startup.
4. I stayed for a year at the larger startup, vested half my options and purchased them, which cost me about $60k to exercise. This is a lot of money to come up with when you've been underpaid for a couple of years.
5. The larger startup was acquired by a large public company - my shares were worth just shy of $500k once the dust settled.
Overall, the money I lost in salary is a little bit less than what I gained in equity over that 3.5 year period, once you factor in taxes, exercise costs, the time value of deferred compensation, and the raises I presumably would have gotten if I had stayed at bigco.
I'd do it again in a heartbeat because the experience was amazing (and led me to start my own company), however, I would have a hard time advising anyone to take a big pay cut in exchange for employee equity for solely financial reasons.