Your Startup Equity is (Probably) Worthless. Why I Tell Engineers to Ask for Cash.

The "Paper Millionaire" Meltdown

I sat across from a candidate—let's call him Alex—who was negotiating his offer.

"I'll take the lower salary ($140k instead of $180k) if you bump the equity to 0.1%," he said confidently. "I believe in the vision. I want the upside."

He pulled out a spreadsheet. He had calculated 0.1% of a hypothetical $10 Billion exit. He thought he was negotiating for a $10M payout.

I had to be the one to tell him the truth.

I explained "Liquidation Preferences." I explained "Dilution" through Series B, C, D, and E. I explained the "Strike Price" vs "Fair Market Value" tax trap.

We ran the numbers for a realistic good exit ($500M). After dilution and taxes, his "Upside" would buy him a used Honda Civic, not a house. Meanwhile, he was giving up $160,000 in guaranteed cash over 4 years.

He literally cried in the zoom call.

Recruiters hide this math. Here is why your startup equity is probably worthless.

Section 1: The "Lottery Ticket" Math

Let's be brutal about the odds.

• 90% of startups fail (Equity = $0).
• Of the 10% that survive, most have "Participating Preferred" stock for investors. This means Investors get their money back plus interest before you get a dime.

The 409A Reality: Your options aren't free. You have to buy them. If the company exits for less than the valuation cap + investment preference, Common Stock (you) gets wiped out using "Waterfalls."

You have a better Expected Value (EV) betting on Red at a roulette table than banking on Series B common stock.

Section 2: The "Golden Handcuffs" Opportunity Cost

Alex was willing to trade $40k/year in cash for lottery tickets.

Cash is King: If Alex took the $180k offer and invested the extra $40k in an S&P 500 index fund every year:

• Year 1: $40k
• Year 4 (with compounding): ~$180k liquid cash.

That is a guaranteed nest egg. It pays for a down payment. It pays for freedom.

The startup equity yields a *likely* zero. Companies use equity to subsidize below-market salaries. Don't subsidize their risk with your life.

Section 3: The "Dangling Carrot" Retention Scheme

Vesting schedules (4 years, 1-year cliff) are not designed to reward you; they are designed to lock you in.

The Refresh Trap: Even if the stock goes up, your new grants ("Refreshes") will be smaller. You are always working for yesterday's promise. And if you leave before an exit (which takes 7-10 years on average), you drastically lose out due to the 90-day exercise window (though some companies are fixing this).

The Rule: Only accept equity if you are a Founder or Early Executive (1%+ stake). If you are Employee #50 getting 0.05%, you are just an employee with a lower salary.

Section 4: The New Deal: Profit Sharing vs. Equity

Equity is for "Exit-Focused" companies (The VC Ponzi scheme). But most companies shouldn't exit; they should run profitably.

Ask for Profit Sharing: "I don't want stock options. I want a performance bonus based on EBITDA."

Get paid when the company makes money today, not when it might sell to Oracle in 2032.

If they refuse, ask for the cash.

Conclusion

You can't pay your mortgage with "Preferred Stock Options." You can't buy groceries with "Valuation Caps."

Work is a transaction. Give labor, get money. Don't get paid in hope.