An employee number ten who takes 0.25% equity in a startup can expect roughly $35,800 once every probability and cost is counted, which is less than the salary they gave up to be there.
0.25% on paper is not 0.25% in your pocket
Say you join a startup as employee number ten. The salary is a little below market, and in exchange you get 0.25% of the company. You do the arithmetic: a $100M sale in a few years means $250,000.
Nice try.
Vesting runs four years with a one-year cliff, so after two years you only own half of it. Then each funding round dilutes everyone: 20% off at Series A, 15% at Series B, around 10% every round after.
Worse is the liquidation preference. Investors take their money out first, and what is left trickles down to you. By the time the proceeds reach your line on the cap table, the number you first imagined is long gone.
The real problem is not the maths, it is the waiting
The thing that kills option value is not the financing mechanics but the clock. The median tech IPO takes 11.5 years, yet the moment you leave you usually have 90 days to decide whether to exercise — often a five-figure sum in cash, for shares you may not be able to sell for years.
And then there is tax. You are taxed once at exercise, as ordinary income, and again on any gain at exit. One estimate put taxes at the majority of what clients spent exercising. If the startup dies, the tax does not come back.
Most of the time there is no finish line at all
Seven in ten startups never exit: no acquisition, no IPO, nothing. Of the rest, a quarter sell for under $100M. Add it all up and an early employee has roughly a 5% chance of a six-figure payout.
The expected value works out to about $35,800. That is not nothing, but if you gave up $20,000 a year in salary to be there, four years costs you $80,000 — $48,000 after tax. You are behind.
The levers you actually have: pick founders you trust, negotiate the post-termination exercise window from 90 days to five or ten years, and ask about the funding history and liquidation preferences before you sign. The rest is luck.
Why it matters
Treating equity as part of your pay is one of the most common pieces of bad arithmetic in a job search: it does not cover rent, it does not cover a mortgage, and a layoff, a move or an illness will not wait until exit day. Getting the sum right is how you tell the difference between a founder's talk of building something together and the balance in your own account.
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