You Cannot Pay Rent with "Paper Money."
The offer letter looks amazing. Salary: $140,000 (slightly low). Equity: 10,000 Shares (valued at "potential" $1M).
The founder looks you in the eye and says: "We are the next Uber. This equity will change your life."
You do the mental math. You accept the lower salary because you want the lottery ticket. You just got played.
In 2025, startup equity is arguably the most dangerous asset class to hold. I have seen engineers work for 4 years, vest 100% of their options, and walk away with a check for $0.00 when the company sells.
Here is the "Cap Table" math that founders hide from you.
1. The "Liquidation Preference" Trap (VCs Eat First)
This is the #1 reason employees get wiped out. When a VC invests $10M, they get "Preferred Stock." You get "Common Stock." Preferred Stock often comes with a "2x Liquidation Preference."
What this means: If the company sells for $50M, the VCs get paid back double their investment before you see a single penny.
- Scenario: Company sells for $20M (a "fire sale").
- VCs: They put in $10M. They take all $20M (2x preference).
- You: You own 1% of the company. Mathematically, you should get $200k. Reality: You get $0.
You are at the bottom of the food chain. The investors eat, the founders eat, the lawyers eat. You get the crumbs.
2. The "Golden Handcuffs" Tax Bomb
Let’s say the company is doing well. You want to leave. You have 90 days to "exercise" (buy) your options. But to buy them, you have to pay the "Strike Price" + Taxes.
The Nightmare:
- You have $100k worth of options.
- To keep them, you have to write a check for $40k to the IRS (AMT Tax) today.
- But you can't sell the stock yet because the company isn't public.
You are literally paying cash to hold an illiquid asset that might go to zero. Most employees can't afford this, so they walk away. They forfeit 4 years of wealth because they didn't have the cash on hand to pay the tax bill.
3. The "Dilution" Death Spiral
In 2021, rounds were easy. In 2025, rounds are brutal. When a startup runs out of cash, they raise a "Down Round." To get the cash, they print millions of new shares for the new investors.
The Math:
- Day 1: You own 0.5% of the company.
- Day 1,000 (After 3 bad rounds): You own 0.002% of the company.
Your slice of the pie gets microscopic, but your "Strike Price" (cost to buy) stays the same. Suddenly, your options are "underwater"—it costs more to buy them than they are worth.
The Real Numbers: Cash vs. Equity
Stop letting recruiters calculate your "Total Compensation" (TC) using made-up equity numbers. Use this calculator instead.
| Component | Recruiter Math | Real World Math |
|---|---|---|
| Base Salary | $140,000 | $140,000 (Real money) |
| Equity Value | $50,000 / yr | $0 (Lottery ticket) |
| Bonus | "Target 10%" | 0% (Startups rarely pay bonuses) |
| Total Comp | $204,000 | $140,000 |
The Strategy: Treat equity as a nice surprise, like finding a $20 bill in your laundry. Never trade salary for it. If they offer $10k more salary or $50k more equity, take the salary.
Frequently Asked Questions (That Founders Hate)
Can I ask to see the Cap Table?
You can ask, but they will say no. However, you can ask two specific questions:
- "What is the total number of fully diluted shares outstanding?" (This tells you what percentage you actually own).
- "Is there any liquidation preference over 1x for current investors?" If they refuse to answer these, assume the equity is worthless.
What is the "Exercise Window"?
This is the timer that starts when you quit. Standard is 90 days. If you don't buy your shares within 90 days, they vanish back to the company. Some modern companies offer 10-year exercise windows (e.g., Pinterest, Coinbase did this). If a startup offers 10 years, they actually respect you. If they stick to 90 days, they are banking on you losing them.
Should I accept an "Early Exercise" offer?
Maybe. "Early Exercise" means you buy the stock before it vests.
- Pro: You start the clock on "Long Term Capital Gains" (lower taxes).
- Con: If the company goes bust next year, you just lost all that cash. Only do this if you 100% believe in the exit and you can afford to lose the money. See our Financial Guide for risk assessment.
Leon Staffing negotiates for cash, not dreams. If you want a contract with a guaranteed rate and zero ambiguity, view our salary-first roles.