Joining a startup: high salary, no equity OR "startup salary" with equity?

This is an important point. I took a job at a startup where the founders have all been part of two 200M exits (1 IPO in the first internet boom and 1 acquisition in 2005). They all made out very well with their options (big house, small yacht, small plane kind of money). They definitely have the connections and the vision to repeat their success. They offered me 3 choices for compensation: high salary, low equity; low salary, high equity; medium salary, medium equity. I ran the numbers and figured based on previous exits that it would be more likely that the higher salary over 5 years would be a better payoff if the company doesn't have at least a 100M exit, and if we do have a much bigger exit, 2% vs 3% will just mean a smaller yacht and no plane.

As an employee, the situation you want to avoid is the quick flip. Do the case analysis:

Failure: better to be a first employee than a founder. You should be better paid, and your 3% of $0 is the same as 50% of 0.

Quick flip (aka HR acquisition): Founders make out much better than first employees, since they'll typically be granted large retention bonuses. Best case you get a free option on a job at the acquirer which probably comes with a reasonably good bonus structure for the first few years.

Acquisition for value: Everyone gets rich. Founders get very rich, first employee gets much richer than he possibly could have working any normal job.

Don't work for people who want to flip their company to Google in 6 months. Work for people who want to change the world.

[1] Unless you've co-founded it with like, Steve Jobs. In which case you should probably take 1% if that's the offer. Also, you are probably a necromancer.

If someone asks you to invest in their company, approach it the same way as if they were asking you for cash - do your due diligence and ask lots of questions. I can't stress this enough - do your homework. Don't make assumptions that just because the founders are successful people that the company will be successful either.

Evaluate the same things a VC would look at - how does the founding team fit, what is the revenue model, burn rate, marketing strategy, who do they plan on staffing, what kind of investment do they have already, plans for raising another round etc. Don't be shy with these questions - the founders want you to trust them and be a part of the team and you have a right to know the answers.

Basically don't base your decision on a gut feeling and some ad hoc criteria, think like an investor before you invest.

If you're actually a real partner (a concept that makes more sense in lifestyle businesses than in VC-funded startups, where only founders and VC implants end up being partners) then equity can make you rich. If you're the 35th person to hop onto the train, you're really just an employee and you're better off with a decent paycheck. The options might pay off, but they won't make you rich in most cases... so it's usually better to have a salary, which might not make you rich either but gives you stability.

The #1 concern should be what you'll learn and what kind of role you'll have, though. Unless we're talking about order-of-magnitude differences, or at least orders of binary magnitude, that's more important than either.

I will say that "3% of $100M (and no other outcomes)" would be an extremely pessimistic assessment of a startup, a so-called "risky double."