Obviously you weren't talking about that sort of acquisition, but it does highlight the point that common stock would be worth somewhat less than preferred due to that potential unless I misunderstand something.
In general, I like to look at the "lottery ticket" value of the options. What are the options worth if everything works out?
Especially when the startup can afford to pay a reasonable salary, I think of the options as a free lottery ticket.
It leads to making really awful financial decisions. At many companies, people don't do enough math to realize how little their options are worth. And so slog it out for years thinking it is a good deal.
And many companies will argue that paying below market is justified because they're giving you options. If you do the math, you might find out that the lottery ticket, spread out over 4 years, diluted by liquidity preferences and successive rounds don't come close to the aggregate bonuses from a 'regular' job.
True story:
At my last startup, as I was leaving, I created a spreadsheet that took everything into account (liq. pref., multiple rounds, etc.) so you could plug in the options you had and an acquisition price and see what you'd make.
I went and showed it to some folks to make sure I'd done all of the crazy math right. It turns out that
a. No one quite knew, because
b. No one else had done it
and that
c. Everyone wanted a copy of the spreadsheet
From the perspective of the company, it is like reverse vesting.
Talk to a lawyer for the myriad details but if you ever hire someone who knows his stuff, he will want to exercise his options immediately.
It's obviously important to keep in mind that to exercise your options you'll need some cash. If your share is big and the company has been well funded already, you might need a lot of cash. And you need to be prepared to lose it all if the company fails.