The standard should be 83(b) elections supported with the company covering cash to exercise (or at least some portion). That makes the equity closer to RSUs, which is more aligned with the desired incentive. VCs / investors should be putting more money into companies to make this work; the employee pool is only typically 10% so it’s a tiny haircut to them.
If I understand it, an 83(b) election allows me to buy stock in the company at the (say) day of employment, and recognise that as income on the same day (ie I buy the stock as I join). Then there is some restriction on me selling it during my employment (not quite vesting but similar).
Which sounds sensible - but I may have misunderstood.
Overall it seems either people are trying to make a simple situation seem complex, or the (US?) tax code is set up badly.
http://www.startupcompanylawyer.com/2008/02/15/what-is-an-83...
Here’s the best part - if the company is worth < 50m at the time then you are granted and exercise them, when you sell those stocks one day, you will owe 0 income tax as it’s a “qualified small business stock” - on your first 10m of profit. Wowza’s!
It’s amazing.
The company could however pay for exercising and pay the income tax on that cost. Then it would be interesting.