That all makes sense, but potential startup employees still need to be educated about the reality that common shares are much less likely to be worth much than preferred shares.  Specifically, if a startup asks a potential employee to take a below-market salary with an option package -- which happens all the time -- the potential employee is best advised to value the option package at zero.  The real reason, if there is one, to accept a below-market salary at a startup is intangible: experience and connections.<p>Edited to add: your item 1 overlooks the fact that founders hold a much larger piece of the company than any post-founding employee.  An exit that makes a founder wealthy may do nothing more than compensate an employee for the salary difference.