Why would you exercise a stock option to receive stock you can't sell? If you can't sell it, it's not worth $1,000,000--it's a piece of paper that might one day be worth more or less than $1,000,000.
Here's the advantages of exercising stock options and filing an 83b election as soon as you join a company:
* When the company has an IPO, you only pay the Long Term Capital Gains tax rate (20%), instead of the standard income tax rate (39.6%).
* Once your stock options have vested, you have the freedom to leave at any time without worrying about taxes or losing your options.
So you can risk tens of thousands now to potentially save hundreds of thousands later, in addition to giving you some freedom.
It's very risky. The company might fail. The company might be successful, yet never have a liquidity event (acquisition or IPO). But you only join a startup if you believe it has a good chance at success. You're risking a huge amount of time and effort, so you may as well risk a bit of cash too.
It's not always that easy. People are not totally rational. Loss aversion is powerful. I've been in that situation. I'm actively avoiding putting myself in it again.
