You didn't address this at me, but I figured I'd chime in.
I do work for a startup now, with options (and have in the past as well). I object to options in the sense that it takes a lot of luck for them to ever be worth anything. It's easy for companies to talk up their potential value (once we get our billion dollar valuation, your 0.05% is $500k!), but in order for the options to be worth the paper they're printed on, a lot of things have to happen in a specific order. One bump in the road, and your shares are wiped out.
Appetite for risk is a tricky way of putting it. I don't think the risk is that the company will fail and the options won't be worth anything; I think the real risk is that something will happen to cause the options to be worth less (or perhaps worthless). That's the sort of risk I'm not interesting in sacrificing much salary for, especially if the company isn't bootstrapping.
When the sum of the options pool allocated for employees is 5% or 10%, the risk/reward ratio is all out of whack. The risk of being diluted/preferenced/strong-armed out of your shares is fairly high. All it takes is one investor with preference to completely wreck the cap table.
As an employee, you need to know that you're absolutely last in line. Standing in front of you are: banks (loans generally come off the top), investors with preference, investors, founders (who will be fine, even if it means their shares are worth $0, but they get an incentive to stay worth $5m), C-level employees who might have preferred shares, and then finally, common stock holders.
So assuming everything to there goes really well, the shares convert to common and everything is looking up. You haven't been diluted into the ground, your company isn't Zynga and demanded your shares back and your company is now public. Congratulations! There are still more obstacles: you can't sell your shares for a certain lockup period, during which the share price could very well dive. If the stock is going up, you don't care, but if it dips, it's a race to your strike price. If the stock dips under your strike price, you have no reason to exercise your options, so you're left hoping that Wall Street likes your company.
And even then, let's say you exercise your options, sell the shares and make $500k. After taxes, you're going to walk away with a good chunk less than that. After taxes, let's say you have $330k. Say you worked at the company for 5 years before they went public, that's roughly $60k/year that your stock was worth.
So the real question then is how much salary is it worth deferring on the very long shot that you make $60k/year off of your stock? $330k isn't exactly life-changing money for most people: it's not enough to retire on, it's a nice down payment on a house someplace in reasonably high demand.
I do work for a startup now, with options (and have in the past as well). I object to options in the sense that it takes a lot of luck for them to ever be worth anything. It's easy for companies to talk up their potential value (once we get our billion dollar valuation, your 0.05% is $500k!), but in order for the options to be worth the paper they're printed on, a lot of things have to happen in a specific order. One bump in the road, and your shares are wiped out.
Appetite for risk is a tricky way of putting it. I don't think the risk is that the company will fail and the options won't be worth anything; I think the real risk is that something will happen to cause the options to be worth less (or perhaps worthless). That's the sort of risk I'm not interesting in sacrificing much salary for, especially if the company isn't bootstrapping.
When the sum of the options pool allocated for employees is 5% or 10%, the risk/reward ratio is all out of whack. The risk of being diluted/preferenced/strong-armed out of your shares is fairly high. All it takes is one investor with preference to completely wreck the cap table.
As an employee, you need to know that you're absolutely last in line. Standing in front of you are: banks (loans generally come off the top), investors with preference, investors, founders (who will be fine, even if it means their shares are worth $0, but they get an incentive to stay worth $5m), C-level employees who might have preferred shares, and then finally, common stock holders.
So assuming everything to there goes really well, the shares convert to common and everything is looking up. You haven't been diluted into the ground, your company isn't Zynga and demanded your shares back and your company is now public. Congratulations! There are still more obstacles: you can't sell your shares for a certain lockup period, during which the share price could very well dive. If the stock is going up, you don't care, but if it dips, it's a race to your strike price. If the stock dips under your strike price, you have no reason to exercise your options, so you're left hoping that Wall Street likes your company.
And even then, let's say you exercise your options, sell the shares and make $500k. After taxes, you're going to walk away with a good chunk less than that. After taxes, let's say you have $330k. Say you worked at the company for 5 years before they went public, that's roughly $60k/year that your stock was worth.
So the real question then is how much salary is it worth deferring on the very long shot that you make $60k/year off of your stock? $330k isn't exactly life-changing money for most people: it's not enough to retire on, it's a nice down payment on a house someplace in reasonably high demand.