Is sweat equity worth less than cash?

Honestly, when it comes to compensation, there is no such thing as "proper financial practice". There's only what you are or aren't willing to accept. If you don't like the deal, turn it down.

That said, if a company gave me a deal like that, I'd say, "Well, if $30K of cash is only worth $20K of equity to you, why should it be worth $30K of equity to me? I'm taking a $30K pay cut to work for you - give me $45K of equity to make up for it (since their equity is apparently worth only 2/3 of its cash value), or the deal's off." If they accept, you've just upped your $60K compensation to $75K. If they don't, well, you probably don't want to work for people that play games like this anyway.

Thanks for the support, I just wanted to make sure I'm not stepping out of the line and being weird to think that his deal is weird.

This deal is extremely weird; in the 4 decades I've been playing this game in one way or another I've never heard of such.

Unless this is a company that started from a publicly traded shell company, the equity they're offering you is unmarketable, it's not something you can sell on the open market to get the equivalent cash (however they compute that).

Assuming you ever talk to them again, ask them how you can turn the equity into cash and then look at that for traps (e.g. "we'll buy you out" is something that at best you can enforce in the courts, which is going to be hard for such a small amount, what you'd see after paying your legal costs).

Their attempt to discount it now says it's not a priced in the future offering, what they're probably saying is that "this is a great deal, $20K today will be worth $20X K tomorrow". That completely ignores the risk side of the equation, the likelihood that the equity will be worth less than $30K when you want to cash out (most likely it'll be worth $0).

The other thing to consider is that equity is cheap* compared to cash, after all that's why they're trying to pay you partly in it.

My strong guess is that either they're idiots or they're trying to cheat you; in either case I wouldn't touch them with a 10 foot pole. Given that you're making a "guaranteed" (well, your current job could go poof) $60K in cold hard cash today, they need to make you an offer that's much, much richer if the cash is less and they're trying to make up the difference with very risky equity.

NOTE: if you don't understand something like this, if it feels "weird", it's never out of line to ask what it's all about, how it works, why they are doing it, etc. Since they are offering something unusual, it is incumbent upon them to explain it such that there is no mystery about it to you.

Generally cash is treated as more valuable than sweat equity in all investment cases. For example, people who invest cash typically get preferred stock which has higher seniority in the situation where a company gets liquidated, sold for a modest amount, etc.

The real question though is what 30K of equity means also. Assuming it's common stock, common stock is often valued at less per share than invested money, which means higher number of shares (for the same valuation), but folks will sometimes talk about it with the preferred share pricing in mind.

I suggest you read up more on how investing and stock setups (capitalization tables) are done, and it probably wouldn't be a bad idea to spend $1K on a startup lawyer for advice to understand what you're negotiating if/when you're negotiating.

and if you live in a jurisdiction that taxes income, and does it higher than on capital gains... and has 83b elections such as in the u.s., one can factor that into a valuation of opportunity cost... (yearly income taxation versus compounded growth resulting in one-time capital gain taxation)

In terms of tax, I believe I can be offered "founder's shares", ie shares that have no value (from the taxman's perspective) that vests over a period. Therefore, my income tax for receiving stocks should be minimal. Canada has a 750k tax exemption from capital gain from owning small businesses so tax is not my top worry if it is done properly

then 20K of equity can be better from a tax perspective for you, as 30K in income after tax would be 20K or less i imagine right away.

at the same time, it's really worth digging into and understand what they mean by whatever equity they're offering, and how they would get to whatever valuation that means. also what % of the company it is that they're offering, what stage is the company at etc., to form your own estimation of valuation of the company etc. looking at % and yr estimation of valuation can be more important than what they're saying...

good luck!

I don't know the answer to this question, but here's a link that I've found to be helpful in answering questions like this: http://www.payne.org/index.php/Startup_Equity_For_Employees

Thanks for the link, looks quite informative