“A boat’s a boat, but the mystery box could be anything.”

There’s an episode of the Family Guy where Peter is offered a choice between a boat and a mystery box. A boat’s a boat, he says, but the mystery box could be anything.

Relate that scene to almost anyone, and they’ll likely be quick to offer a follow up reference to a similar scene from the Simpsons, UHF, maybe a book or other show. Everywhere we’ve seen it, we remember the trope vividly — because honestly, how could you be so stupid to choose the box over the boat?

But no one ever seems to recognize that same box in its most common form: Startup Equity.

Startup culture is obsessed with big wins, and only big wins. The boat on its own not big enough for the Valley. So, just as Peter says, “We’ll take the box.”

It makes sense for VCs to shun the boat because they can keep opening mystery boxes until they find diamonds or a private island. But what about the rest of us? To answer that we need to swallow a few hard truths about the nature of equity.

1. The choice is obvious in hindsight.

There was at least one early Slack employee who cashed out a significant number of shares into the company’s $5M A round. Just a few years later, the company is now valued at around $3B. Oof.

I can hear you thinking it too: “What an idiot. Shoulda kept those shares.”

But wait a minute. Back then Slack was called Tiny Speck. It was a browser-based game development company whose best game had to be “unreleased” because gameplay was so bad. That was still 3 years shy of its wild Hail Mary pivot into Slack Technologies, a chat app.

What?

That idiot who cashed out walked away from a company with a questionable future with tens (maybe hundreds) of thousands of liquid dollars that didn’t exist the day before.

Ask a day trader if that’s a good or a bad trade. Then ask the geniuses who held onto their Fab shares what they think. Or their Secret shares. Or who were awarded RSUs at Square’s pre-IPO valuation.

For every winning lottery ticket, there’s a million bits of trash, each mottled by a meaningless sequence of numbers.

2. Equity has no value.

I can almost hear the objections of founders echoing across the valley. “What about the early employees of Facebook, Google, and Uber?” they say. I hear this a lot actually. It’s a particular delusion of many founders to compare themselves with legends before they have done anything legendary.

If you don’t permit tenuous comparisons to huge improbable wins like Facebook and Google, you are left with the reality that employee equity is solely a salary negotiation device. Its purpose is to persuade you to accept a lower salary. Strategic deployment of equity is just one of many tactics a company uses to lower its burn.

If you don’t believe me, try an experiment: next time you are extended an offer from an early-stage company, suggest to trade the equity portion of the offer for the cash value of the options (in addition to the advertised salary). Good luck.

Anything of value can be traded for or converted into something of equal value. Equity does not have this characteristic. You can’t spend it, you can’t liquidate it, you can’t even trade it.

Sure it’s possible that one day your equity will become valuable, but that day is not today. Today, it’s only a fantasy.

3. Equity is not yours.

The story you’re always told is that upon signing you’re awarded X% of Y company. Before you can even get a word in, inevitably you get a few back-of-the-napkin calculations on what your percentage will be worth when the company exits to Yahoo for $750 million or IPOs at, say, $2 billon, which really isn’t all that much when you look at other tech IPOs of the last 5 years, especially if we hit our projections and have someone special like you onboard to really kick us into high gear.

It’s an amazing story, told with the confidence and co — oh my god what is that, is that a tiger over there?

Assume for the sake of argument that the company is a good one and it is likely to win. A typical vesting cliff is one year after your hire date. At any point during that year, regardless of how hard you work or how well you perform, the company can terminate you and retain all of the shares you were “awarded”. Meaning the company actually has economic incentive to terminate you. Thankfully, this is somewhat rare, though it does happen.

Another crucial fact that is often swept under the rug during the story is share preference; that is, who gets paid first during a liquidation event? Unsurprisingly it’s not employees. Except in the case of a big win, you might not even be paid out in full.

4. Only founders get rich.

Except in the edge cases of very early employees in wildly successful companies, a founder’s relationship to equity is fundamentally different from an employee’s.

This is primarily a result two factors:

(1) Equity has value to founders — They can, e.g., use it to persuade you to accept a lower salary. Or trade it to investors for cash.

(2) Equity belongs to founders — They created the company from nothing. Even if they are on a vesting schedule, they still dictate how and to whom the equity flows.

If these two points sounds exactly opposite to truths (2) and (3) above, it’s because they are.

Many founders even get rich while you hold your mystery box. They do so by selling large portions of equity in off-the-table transactions after funding rounds. Generous founders may offer employees an organized opportunity to sell vested shares in similar transactions, but this is usually discouraged. Most employees simply do not have enough equity to sell, and it’s in the company’s best interest for you to hold what you have. Holding a small bag roughly correlates with belief in the company. As a result, off-the-table transactions happen in secret. Except it’s hard to hide that new ferrari.

Bottom Line

There are some worthwhile arguments to be made about equity ownership aligning you with the goals of the company. They are good arguments, and meaningful in practice. That said, equity is risky. If you have any doubts about the future of the company making you an offer, do your best to avoid equity and ratchet up cash. The probability of getting rich from employee equity is almost zero, while the chance of rain on the 1st and 15th is 100%.

Too, if your goal is to get rich, why don’t you just start your own company?

Then you can box your own mysteries.