Assume that you are working for a startup on hourly rate basis (let's assume
x dollars per hour) right from the start. Now, after
y month, the stack holder offers you equity in exchange of hourly rate. Your confidence of that startup eventually pulls off is 50/50.
How do you come up with an equity option that is fair to both of you and your stack holder?
I understand that there is a very subjective question, but I would be interested to hear how you handle this situation.
Before you can even start working on a conversion you need to know what an option is worth relative to the perceived worth of the company.
It's difficult to put a value on the company stock as a whole, but you have to come up with some number that everyone feels comfortable with and then you can try to back into a conversion taking all of the above factors into account, as well as the 50% success rate you estimated.