If software is the product, I suggest the first engineer should be taken on as a co-founder and/or get the same equity as the non-technical founders. Anything less will undervalue the incredible and unique contribution of that engineer.
Otherwise, I've seen two methods of valuing startup equity offers:
1. Options are worth nothing, until they are worth something.
2. Options are worth their face value times the probability you will meet that face value. Example: 2% equity of a startup targeting a $100M exit, with a 1% probability of hitting that exit = (2% * 100M) * 1% = $20,000.
I agree with other commenters that a chance at "life-changing money" is usually required for higher-risk situations like being a first employee. So that's the real test, not a fixed percentage.
Comments
If software is the product, I suggest the first engineer should be taken on as a co-founder and/or get the same equity as the non-technical founders. Anything less will undervalue the incredible and unique contribution of that engineer.
Otherwise, I've seen two methods of valuing startup equity offers:
1. Options are worth nothing, until they are worth something.
2. Options are worth their face value times the probability you will meet that face value. Example: 2% equity of a startup targeting a $100M exit, with a 1% probability of hitting that exit = (2% * 100M) * 1% = $20,000.
I agree with other commenters that a chance at "life-changing money" is usually required for higher-risk situations like being a first employee. So that's the real test, not a fixed percentage.