I'm planning on asking for more money at review time coming up fairly soon and hoping for the best of both worlds, but I'm curious how folks here would value ownership in a young promising tech/healthcare company, at what point am I just letting them pay me in lottery tickets compared to investable dollars?
I would take a good, hard look at the future for the company. Does it have a real potential to have a billion-dollar IPO or acquisition in the next decade? If so, you're looking at a $20 million payout (2% of $1 billion), or even more! Of course, there are only a handful of billion-dollar IPOs per year. If you don't think your company will ever be among them, what ceiling would you put on its eventual value? There's a real possibility that the company will fail and your stock will be worthless.
Do some research. Are there any publicly traded companies in a similar area of business? What are they worth? Is your company competing directly with them? How likely are you to beat the competition? How much do you expect your revenue to grow on an annual basis? If you keep up that growth rate for five years, how will your revenue compare to existing internet companies in the public markets?
It's important to remember that this equity is a gamble. It could be worth anywhere from zero to millions, depending on how well the company performs over time. If the company does well, you'll pretty much be able to retire immediately after the IPO. If it doesn't, you will have worked for a few years at a substandard salary. The upside is huge (but unlikely), the downside is bad and likely (but not terrible). The good thing is that your existing salary should be high enough to pay for your expenses and still save a respectable percentage if you live a frugal lifestyle. So even if the company crashes and burns a few years from now, you should still have had the opportunity to amass a decent stash for retirement, and you can keep building it at your next job.
It really comes down to this: how risk-tolerant are you? If the company fails you might have to work an extra few years before FI compared to if you had worked for a market salary at a more established company. Is that okay with you? Is the potential to become fabulously wealthy worth that risk?
