It’s nonsense, but coming from a recruiter, it’s not a red flag to me. If I red flagged every recruiter who didn’t quite know how the world worked, I don’t how many I’d have left. If a founder or a CFO tells you that, it’s a red flag; if it’s a recruiter, they’re still wrong, but I don’t count it nearly as sharply against the company.
It’s the ultimate in survivorship bias.
Startups that fail tend to do so early, before they've hired a lot of people. Far more equity grants are given out by series C-D-E startups because they're able to hire vastly more people, and the rate of failure of those companies is much lower.
And again, that's still not a reason just to ignore the equity component of an offer. You're clearly cynical about equity - that's fine. Understand your equity and use that information to negotiate for less of it and more salary (or whatever else you prefer).
https://medium.com/@bharatanant/evaluating-the-risk-reward-r...
They are only talking about investors who have first preference in any “success” of the company and they are usually well diversified and not depending on one successful exit. You as an employee get lower preferences and have all of your eggs in one basket.
Now given a choice, why would I work for a startup instead of a profitable FAAMG (not a typo) where I get RSUs or even a “second tier” profitable tech company like Salesforce, Adobe, Intel, Nvidia, etc. where at every vesting event I have the opportunity to immediately sell and diversify my risks? I don’t need to depend on the long term viability of my RSUs. Just the viability over the next six months?
First off, if you're comparing multiple offers with similar salaries, equity considerations may be a good way to make a decision.
Beyond that, understanding how companies handle equity compensation can tell you a lot about their culture and treatment of employees. There are companies out there that are eager to answer these questions because they give generous stock compensation and want you to know it. There are also companies that will obfuscate and hide behind misleading numbers. I once had an offer and asked for more equity, only to be told by the recruiter that the stock was about to split, so I'd actually get twice as much (this is absolute nonsense, to be clear, and a huge red flag).
Lastly, with regard to your initial question about compensation, asking these questions absolutely can be useful to that end. When you're negotiating with early to mid-stage startups, one of the things that you can negotiate is your equity/salary split. I once took a pay cut from the initial offer in exchange a much greater amount of equity than I was initially offered. That was because I found a lot of positives about the company and preferred higher risk and more reward (thankfully it looks like that is going to work out very well in my favor, but obviously that was in no way assured). If a company's giving you bad answers as it relates to equity, you may well want to try to negotiate for a higher salary in exchange for less equity, so your financial circumstances aren't tied as much to the company's performance. Understanding equity gives you one more dimension on which to negotiate, and the more things you can negotiate, the better off you are.
There is this prevailing idea in Silicon Valley that you should just ignore equity and treat it like a lottery ticket, and while I think that is very good for financial planning, it is otherwise awful advice. Just because you don't have full control over the way things go with equity doesn't mean that you shouldn't educate yourself on what can be a meaningful portion of your compensation.