5 years to exit * 20K yr opp cost = 100K total opp cost
I think my payback should be twice my total opp cost, so I want 200K at exit
1% chance of exit at 600M valuation after those 5 years
I would expect my initial equity to be diluted to 50% of original value.
Hence, I want 6.7% equity at the beginning of the 5 years.
Note that, IMHO, I am being very conservative in calculating my opportunity cost for the lost salary.
I also neglected to make explicit my use of the expected value of the exit in my calculations.
I hope this helps to clarify my thinking.
Averaged over all startups, of course, 1% is a reasonable estimate (might even be high). So another way to put this is, a savvy top developer just isn't going to join an average startup, period. They'll have to be persuaded that the opportunity is an extraordinary one. The bulk of startups will have to make do with less-experienced developers. This is why pretty much every startup now needs a technical co-founder.
Ah, I see, I wouldn't have taken that into account since I'm not sure it quite works out that way. It seems you've intertwined probability with opportunity cost, is that correct?
EDIT: Thanks for the breakdown, by the way! I really appreciate the insight.