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Even if the startup is positioned well with deep pocketed investors you won't be able to cash out the equity for at least 8 years (a typical time span from launch to IPO or buyout for a successful startup) assuming you still work there (or you quit and purchase your vested options with your own money) ... and the odds of any given startup reaching a miletone where the equity is worth selling is small.
Looking back on it, it's easy to say that I made a "bad" decision (e.g I should have seen the writing on the wall and realized these startups were going to tank), but I'd probably do the same thing over again, for a few reasons. Although the startups ultimately failed, I was still paid enough to have my own apartment, cover my expenses, etc. On top of that, the "jack of all trades" role I took on in these startups allowed me to pick up a lot of other skills (sysadmin, design, etc) that I wouldn't have been exposed to had I been paid market and chose to go the corporate path. I also made some invaluable connections that I still rely on and am in contact with to this day.
Now that I have a few years more of experience working at both startups and nonstartups, it's a much tougher decision overall. As tferris pointed out, the opportunity cost of giving up a portion of salary for a tiny slice of equity is much higher as an experienced developer with a broad skill set. Interestingly enough, working at a startup in my earlier years out of school played a vital role in acquiring that skillset. So, you really need to other factors like the founding team, traction, market, etc when considering a startup as well as both where you're at and where you're trying to go in your career.
Most likely, the startup will go bust and you won't get anything. Even if it doesn't, I don't think they can possibly give you enough (unless it's Facebook or you are getting 50% of the company) which equates to months or years of your life that you can't ever get back. My solution? Salary only and I take the salary and fund my own startup.
Most startups fail (and I've taken enough of the crappy deals to find this on my own), so I've become a skeptic, usually doing a better job of analyzing their ideas and connections. I end up charging my full rate (which to me is more valuable than the gamble of equity) and then using it as capital for my own projects.
Enough equity to give you a sense of urgency and personal investment in the success of the company.
Your personal 5 year plan should treat those options as worthless. If the salary doesn't mesh with that 5 year plan, then it's too low.
However, for 1%, 2%, 3%, or even an unheard of 10% equity, it's just simply not worth it when it's so cheap and easy to start something myself or find a co-founder.
It's odd that I follow Hacker News and lap up everything startup and YC related, but I wouldn't even click on one of the YC job postings as the prospect of this kind of deal does not appeal in the slightest.
Joining say 3 co-founders with 33% each against my 1% as the first senior engineering hire would really stick in the throat unless they had monster traction or funding [in which case they'd already probably be bigger then 3].
I just do not understand who takes these roles with very early stage startups as the entrepreneurial 'rockstars' that they are asking for can easily have a go themselves with not much less chance of success, pretty limited downside if it fails, and high opportunity costs either way.
For that reason, if I went to work for a very early stage startup, I'd want a much, much, much higher salary than I could get in the market at a big company. This would be to compensate me for the additional risk, the additional workloads, plus the fact that I would be helping them add outsized value in terms of building the company for them.
Most likely, the startup will go bust and you won't get anything. Even if it doesn't, I don't think they can possibly give you enough (unless it's Facebook or you are getting 50% of the company) which equates to months or years of your life that you can't ever get back. My solution? Salary only and I take the salary and fund my own startup.
A friend of mine wouldn't leave because he had equity..even when management sucked and it was a terrible place to work. The company didn't get their next round of VC funding and went out of business withing 8 months.
My problem is that it's too easy for the management of these companies to drive the company into the ground with terrible ideas..and you, as a minor stake-holder have absolutely no power to stop it.
Once you have that out of the way, you can think about 'extra'.
Getting the 'extra' as equity has the highest potential return and the lowest probable return. Which is to say that if the startup has an exit that involves the common stock you could potentially get millions of dollars. However startups are startups because they are as yet unproven businesses. Their chance of failure is high early on and it goes down in proportion to revenue.
What that means is that when a startup is later stage, has a product and some revenue, its less likely to fail than when it first starts and before it has a product or revenue.
So generally you can split startups into fairly large risk baskets.
Basket 1: pre-product / post-product
Startups that are pre-product are the highest risk, and the getting 'extra' as equity here is something of a sucker's bet. The company has yet to prove they can even build what it is they want to build, much less sell it or get users.
Basket 2 (post-product): pre-revenue / post-revenue
Startups that have a product can be spit into those that have convinced a customer to pay them money for their product and those that haven't. The sad truth is that some products cannot be sold profitably or at all. So the next big 'milestone' is that there is revenue coming in from customers who are using/buying the product. Pre-revenue is higher risk, post revenue lower risk.
Basket 3 (post-product, post-revenue): Traction / No Traction
The third split is the traction/no-traction split. If a startup has customers and revenue, they have crossed the 'big' hurdles, but to grow they need more customers. That is where traction comes into play. Is the startup getting new customers? What is it costing to get them? Do those costs outweigh the revenue they generate?
If your startup is post-product, post-revenue, and has traction always take equity. It is going to pay back better than salary.
I would absolutely love to work for a startup as an early engineering hire. I'd take an enormous pay cut for the right firm, people, and product. However, for 1%, 2%, 3%, or even an unheard of 10% equity, it's just simply not worth it when it's so cheap and easy to start something myself or find a co-founder. It's odd that I follow Hacker News and lap up everything startup and YC related, but I wouldn't even click on…
I'm not saying it especially takes a lot more skill but the level of stress and responsibility of the first non-founder is considerably less than the founders and always will be.
So there's that.
You also shouldn't expect more pay than a big company, a startup can be a lot more fulfilling and that's what you go there for.
You seem to know that from your first sentence but have put some strange mental barriers around taking the plunge. It's like the difference between doing extreme sports or going golfing. Both are past-times, just very different experiences that elicit different desires in different people.
EDIT: No idea at all why this was d/ved, if you don't want other people's experiences on HN... d/v away
I would absolutely love to work for a startup as an early engineering hire. I'd take an enormous pay cut for the right firm, people, and product. However, for 1%, 2%, 3%, or even an unheard of 10% equity, it's just simply not worth it when it's so cheap and easy to start something myself or find a co-founder. It's odd that I follow Hacker News and lap up everything startup and YC related, but I wouldn't even click on…
As a non-founder you don't get the 'oh shit, pay day, um, have I got the money' or the 'right, I've promised X, Y to A and B yesterday. Damn'. Or the 101 other little things and worries and anxieties you experience. I'm not saying it especially takes a lot more skill but the level of stress and responsibility of the first non-founder is considerably less than the founders and always will be. So there's that. You also…
To an extent, but I would be almost as exposed to the risks as the initial founding team in terms of it crashing and burning.
And you know what? In a way, thats fine. Part of the appeal of joining the startup is that you get to live on the edge a little. You celebrate the wins and mourn the losses, you fake it till you make it, you buy into the mission and give everything you've got to try and make it a success.
But despite my best efforts, I just don't think I could do that to my fullest for 1% and a market salary. I'd of course give it my best shot, but part of the appeal of doing the startup is that I would want to give more and go all in on the project.
This might just be the fact that I believe I have it in me to do it myself, and I'm at a time in life where I will have a real go in the not too distant future.
But the problem nowadays is that most good entrepreneurial developers will be thinking along similar lines :)
To be clear, I think early stage startups such as the ones straight out of YC should really open the purse strings with regards to giving away vesting equity to early engineering hires. 1% just isn't going to cut it for the top few % of talented, entrepreneurial developers with requisite level of experience - who will likely have very high opportunity to costs at the moment.