I agree with all your points, especially that many startups 'prey' on employees who don't really understand how startup economics work.
This is why I think it's important to distill general rules of thumb like the one I suggested. This will give employees a realistic perspective when evaluating startup offers.
For example, let's say your typical pre-series A 1st engineer hire gets $150K + 1% vested over 4 years. Instead of thinking about what your shares would be worth in the case of an IPO, just take the last company's valuation, halve it and multiply it by your ownership. So, if your startup's last raise was at $10M, your 1% stake is worth $50K.
If people start thinking in these terms, the level of disappointment will go way down because you start realizing that the expected value of employee equity is almost never that much to begin with.
Halving it for dilution is not actually enough. Remember that the valuation that an investor is paying is what the investment is worth _to them_. Any investment is worth more as part of a well diversified portfolio. As an employee, you lack that diversification. Even worse, the investors get significant protections built into their investment... preferred shares, board seats, dilution protections.
I would be surprised if the true value (if that were possible to calculate) weren't closer to 1/10th the valuation that investors bought in at.
This is why I think it's important to distill general rules of thumb like the one I suggested. This will give employees a realistic perspective when evaluating startup offers.
For example, let's say your typical pre-series A 1st engineer hire gets $150K + 1% vested over 4 years. Instead of thinking about what your shares would be worth in the case of an IPO, just take the last company's valuation, halve it and multiply it by your ownership. So, if your startup's last raise was at $10M, your 1% stake is worth $50K.
If people start thinking in these terms, the level of disappointment will go way down because you start realizing that the expected value of employee equity is almost never that much to begin with.