Unlike an actual lottery ticket, the theory was that there was incentive to help the company succeed in the stock options:
From Steve Blank's article:
> Startup employees calculated that a) their hard work could change the odds [of their options being valuable] and b) someday the stock options they were vesting might make them into millionaires.
So while from an odds perspective, today's ISOs are still (perhaps) better investments than state-run lottery tickets, from an employer/employee perspective the alignment of interests is no longer there. And (as you've noted down-thread) this is resulting in employees asking for much higher salaries that essentially match what they're being offered by already public companies. In addition, employees may be more focused on the success of their careers and less on the success of their employer.
Posting anon for obvious reasons. There is no alignment of interest for most employees with stock options, and anyone that things so is being naive or foolish.
Firstly, you have no idea what the cap table looks like as an employee, so it isnt clear whether you alignment is equivalent to a grain of salt or a car or a private island. And if it werent a grain of salt, the company would be eager to tell you.
Next, founders often get partial cashouts, so their goals are different from yours. They already got their nice house in palo alto, their nice car, and a kids's college fund. Now they are swinging bats for a grand slam. You are the ball they are hitting -- most likely they strike out. You lose, they still win, just not as big.
Next, VC-installed management, friends of the board, and other insiders are already cashing out while you "wait for the big IPO." The insiders are getting nice cash bonuses. They are on incentive plans where they get $1/2 Million or more for hitting targets. Or they are 20somethings who are mysteriously senior directors or VPs earning cushy 400k salaries. You arent.
Instead, you are taking your "startup salary", a big discount over big company stock. You're working just as hard. Each year you give up big perks and big pay at big companies you could be working at. If you cant take it anymore, you lose, because you have to exercise illiquid stock and pay tax with real money. If you get bullied or have been sexually harrassed and are desperate to find another job, you still lose -- , because you have to exercise illiquid stock and pay tax with real money.
Except there are a line of suckers, often out of college, willing to take this bet. So the music plays on.
3. If you are risk loving, work at a late stage startup with some semi-liquid private market for stock
4. If you are looking for punishment, roll the dice with an early stage startup OR play the lottery
The ONLY real scenario where early stage startups make sense is if they give you a great role you cannot get at a big company, something with lots of learning or growth. That is actually a great opportunity.
From Steve Blank's article:
> Startup employees calculated that a) their hard work could change the odds [of their options being valuable] and b) someday the stock options they were vesting might make them into millionaires.
So while from an odds perspective, today's ISOs are still (perhaps) better investments than state-run lottery tickets, from an employer/employee perspective the alignment of interests is no longer there. And (as you've noted down-thread) this is resulting in employees asking for much higher salaries that essentially match what they're being offered by already public companies. In addition, employees may be more focused on the success of their careers and less on the success of their employer.