A "for cause" firing (which invariably comes with no severance, and can have reputation effects, because for those words to come up on a reference check is devastating) can really fuck up your career. Also, there are a lot of venture capitalists out there who have no problem breaking with common decency and doing a "back channel" reference check.
That's one risk. There's more variance in startups, so the good outcomes are a lot better, but the bad outcomes are really nasty. I know people who've had ex-employers throw frivolous lawsuits at them, just to be vindictive, years after the fact. That kind of nonsense doesn't happen nearly as much in big companies.
More relevantly, a lot of these startups don't do much for a person's career, as there's a lot of junk work to go around that you won't learn much from. If you get into your 30s and 40s and haven't worked on a couple of serious, meaty projects-- and a lot of people haven't-- then you start facing the age discrimination issues. I think those are probably mild for people with legitimate work experience, but the people who did lots of low-yield grunt work "because it was needed" and without appreciation are just screwed. You have to manage your career, and if the work available isn't benefitting your long-term employability, move after 12 months. But... that gets me to another risk: the job-hopper stigma. It's pretty typical in the VC-funded startup world to have more than one job per year, but it looks really bad if you want to go to back to traditional companies, and you might not slide back in on the best terms.
Unfortunately, the reality in careerist America is that age matters a lot, so you have a lot less time than you think you've got. It shouldn't matter, because what really matters is how much time one has left, and a lot of us will live into our 90s (or later, if the most optimistic people are correct) and be sharp until the end. However, the sad truth is that age does matter, and you have to manage your career pretty aggressively to avoid looking like an underachiever amid the harsh age-grading of hyper-optimistic tech companies.
The problem isn't just in the US. I'm from India, and the situation you describe matches the very situation we have here.
One thing that really pisses me off totally, is the industry seems to classify people into two separate categories. First, the kind of people who become managers quickly are automatically considered good. Its almost like if you are coding after 5 years into the industry, you are 'stuck'. That's how its described.
Second, is the kind of people you describe as in having worked for technically meaty projects before say 30. Unfortunately such work is exceedingly rare to find. I would be glad if you can write an essay on how to be finding such work. It would help me and nearly everyone else a lot.
Losing a job is not a big deal, usually. Layoffs and business failures happen. Closing your venture because it didn't work out doesn't always ruin your life. But if you took out $80,000 in credit card loans, or took on personal liability to get a bank loan, or had a vindictive investor who decided to ruin your reputation, welcome to Fuckedville.
There are a lot of young people out there right now who are far too willing to risk their careers, reputations, resumes, and savings opportunities on terrible prospects and in business with some really unethical people. The fact is that if you don't gain a certain credibility quickly, you're going to be screwed. If you don't look out for your career and really think through what happens in the case of failure, you could very easily end up at a bad end. I've lost close to $200,000 on bad startups, but at least I always made sure that I kept learning and building skills, no matter what. Now that I'm older, having kept my skills sharp is starting to pay major dividends.
We have these obscenely privileged people, who are so well-connected as to be tied in with what's essentially a private welfare system, who go out there and preach about how failure is no big deal and everyone should risk everything all the time, knowing that they're Stanford grads with partners at six different VC firms in their cell phones. That's not realistic; and people who don't have the social resources to take extreme risks (i.e. the 99%) shouldn't be decried as cowards because they do less risky things like, you know, take regular jobs.