I've been through this a few times. Three times the startup went under before exit, and the options wound up being pure fiction.
Once I left the company with some vested options, bought them for about 500 bucks, and then got washed out in their next round of investing.
Once (like you I was employee 65 in a 70 person company) we got bought for a nice sum, and the employees all got retention packages worth, as tptacek noted, 5 figures per year served, give or take. Most of the early-in employees, who put in very long hours at the beginning, felt a bit screwed. They worked out their hourly rate for overtime spent on the company, and it came out... okay. Not great. Late arrivals like me felt just fine.
The main point I've taken from these experiences is this: when grunts like us own shares in a private company (or options to buy shares), we don't own anything real. What we own is a small piece of a partnership contract, in which we are a very underprivileged partner. If you look carefully in the partnership agreement, you will see that not all shares are created equal. There are A class, B class, C class, and so on. Each class of shares enjoys different privileges w/r to the money that comes into the company. Grunts like us get C class shares that place us at the mercy of the other two classes.
Investors and founders are senior partners in the company, and they can pretty much do what they want with your part of the contract. Your only remedy is to quit the company.
Some things companies commonly do with shares of this class:
- Take a new round of investment, and rip them up. Often this happens after a down round of fund raising. With layoffs in advance. The laid off employees lose all interest in the company (even if they bought their shares!), and the remaining employees get issued new options in the new agreement.
- See them replaced with some other incentive plan. This usually happens after a medium sized exit. Basically the buyer puts a certain amount of money on the table. The board of the company splits up the pie in some way that sort of relates to the current share agreement. Then they wash out all of the existing shares and hand out retention packages to employees and founders. The size of the packages typically relates to the size of your grant, but few people get cheques cut on the day of the sale. Most have to work for a year or two to see the payout.
Let me sum up with this: I'm not bitter! I've got way less risk in the game than investors and founders, especially as a late arrival. This is the reality of the game, and my eyes are wide open. So equity participation in a small company for me is icing on the cake. Far more important is base salary, benefits, HR policies, company culture, technology, co-workers, all that stuff. I've never chosen one company over another based on the options package. For grunts like us it rarely matters anyway.