liquidation preference and other loop holes when joining startups who offer equity

Legal parts of the agreement requires good knowledge of local laws to interpret. But since this is a Personal Finance site, we can look into the financial implications.

Equity for pre-IPO companies usually falls into high-risk, low-liquidity category of assets. It is high risk since there is no guarantee that this business takes off, and in case of default there is often little or no material assets to be liquidated, so the company is only worth as it's growing business. It is low liquidity since you can get money (in most countries/situations) only in case of IPO or acquisition of the company, and none of these are in your control, so you just sit tight hoping one or the other happens in near-enough future while the company is still doing well and you get good returns.

The situation can get more complicated if you want to leave the company after you have vested some options but there is no IPO/Acquisition event on the horizon. Then depending on the country and your agreement, you might be given a deadline of few months to either exercise your options to buy stocks at set price or leave them behind. Now you have to actually put (even more) money into (and maybe even pay taxes on) an asset that is not very liquid and still high risk.

This is not to say ESOP or equity are worthless, but to know how to asses them in a package and where to imagine them in your investment portfolio.