A startup offers you a job. The salary is lower than you’d like — maybe way lower — but they sweeten the deal with equity. Stock options. A slice of the company. And they paint this picture of what it’ll be worth when the company blows up and goes public.
Here’s the honest version of that story.
Equity at a startup comes with serious risk, complexity, and no guarantees. It’s not like a paycheck you can count on. It’s closer to a lottery ticket that’s tied to whether a bunch of unpredictable things all go right at the same time.
Most startups fail. When they do, your stock options are worth exactly zero. Not a little. Zero. And even when a startup gets acquired — which sounds like a win — the deal might happen at a price lower than what the company was last valued at. That means the people with options often get nothing, because the math doesn’t work out in their favor. The investors who got in earlier, with different deal terms, get paid first.
One writer on LinkedIn put it bluntly: if the shares aren’t publicly traded and you can’t actually sell them on a market, equity at a startup is about as useful as a lottery ticket — and in his view, there’s well over a 99% chance it’s not worth giving up salary for it. That’s one person’s strong take based on experience in the space, and it’s a pattern a lot of people have lived through, even if the exact number isn’t from a formal study.
There’s also the tax side. Equity isn’t simple like a paycheck. Depending on the type of options and when you exercise them, you can end up owing taxes on gains you haven’t actually received yet — money that exists on paper but not in your bank account. Certain types of stock options can even trigger the Alternative Minimum Tax (AMT), a less-obvious tax rule that catches people off guard. Investopedia flags this as one of the biggest surprises people don’t see coming.
None of this means you should automatically say no to equity. If you genuinely believe in the company, if the equity offer is generous, and if you understand you might get nothing — it can be worth considering. The key word is *understand*. Go in clear-eyed, not starry-eyed.
But if a startup is using equity to justify paying you significantly below market rate, that’s worth pushing back on. Your rent is real. Your groceries are real. A promise of future stock that may never materialize isn’t the same thing as money you can actually use.
Bottom line: equity is a bonus if things go great, not a substitute for being paid fairly. Don’t let anyone convince you otherwise.