Here is how this happens. Let's say for argument sake, there are 20 million shares or options floating about. Let's say you own 500k of them. Now Mega_Company and your company New_and_Cool announce a 20 million dollar purchase. You think your might be in for a $300k windfall (or more), but here is what is likely going to happen.

VCs will have a preferred stake that must be satisfied as part of any buyout. Usually this preferred stake will require satisfaction that is a significant multiple of the at risk position. The VC put up a million bucks but now requires the first ten million as part of any buyout.

Next, C-Suite will arrange direct compensation and retention packages outside of the context of common shares/options as part of the buyout. The CEO will get a five million dollar direct payout while the rest of the C-Suite and Board split an addition 5 million.

Then low and behold, your shares/options are worth... Nothing. Imagine that.

An equity position in New_and_Cool is snake oil and should be evaluated as such. Yes, I know there are counter examples and "so and so's secretary" is now living on a private island someplace thanks to their options. In my opinion, these gilded accounts only serve to make the gullible more susceptible.

I did a startup setting aside a large portion of shares for employees, but nobody asked for it. It was easier to just pay more - large businesses were paying $1000/month for an mid level programmer. So it was just easier to offer $1000/month to juniors.

However early stage VCs offered a rate of about 1% for 2 months salary. So sometimes it's easier to offer that early stage employee the 1%. Some have enough money in the bank that they'd like to invest in something.