(FORTUNE Magazine) – It doesn't pay to be in a hurry. The Silicon Valley insider never rushes to sign up with a company whose IPO is just around the corner. But how could I have known that when I started out?

Drawn to the Valley by an offer to join a promising Net startup back in early 1996, I was over the moon to get options. My 50,000 shares at a grant price of $7 made me feel as though I were about to win the lottery. Geez, I thought, this company is only months from going public, and even though no one "officially" knew what the price of the shares would be on the day of the IPO, the buzz placed it at $12 to $14. That meant--could it be?--that the value of my shares would be between $250,000 and $350,000 after a few months of work. That would have been almost enough to make a down payment on a rundown, 50-year-old ranch house somewhere in the Valley, at least back in 1996.

Of course, those numbers were not worth much more than the basic arithmetic that generated them. The investment bankers who underwrite an IPO require senior managers of a newly public company to wait six months before starting to sell stock. In my case, I had to wait a few months longer, until I vested my first batch of shares. Most Silicon Valley companies write options agreements so that employees vest 25% of the options at the end of the first year of service and then a pro rata share of the balance each month for the next three years. In other words, it takes four years to get your hands on all of your options.

As I hoped, the company went public a few months after I arrived. For a few brief weeks the future looked bright. The only strange turn of events was the sudden resignation of a few mid-level managers. They sent out messages containing the usual mumbo jumbo about how much they had enjoyed their time at the company but how they were now irresistibly drawn to new challenges. Right.

I wondered if they had in fact been fired, but one of my more experienced colleagues--a definite insider--explained what was going on. The folks who left, he said, had joined the company in its early stages, more than a year before the IPO, when the company had just a couple of dozen employees and shaky prospects. In order to attract new hires, the company gave out very large stock grants, at prices of just pennies per share. When we went public the folks who joined early were already vested in tens of thousands of shares at a strike price of pennies per share. They were too junior to get caught in the six-month lockout; once they were out, they had 60 days to buy their vested shares at the option price (just pennies!) and then hold or sell. I bet they sold.

Why the hurry to exercise the options and scoot? Back in 1996 it was not at all clear that an IPO would necessarily lead a new issue to a Yahoo-like space shot. The received wisdom then was that shares for newly public companies did well at first but faltered in the medium term. So you can make the case that it's better to get out early while the stock is hot and then go find another startup.

If that get in, get out, get rich strategy strikes you as a bit disreputable, then there's the next best alternative to consider: Get those penny shares and stay on for at least four years. The share price may roller-coaster over the months, but if you have penny shares the company has to really crater before your shares are out of the money. Over four years, there is a nice averaging effect if you sell off monthly. My colleagues call it VIP, for "vesting in peace." The ones I know who got it right seem to buy a lot of new cars and other toys.

Of course, my strike price of $7 is not the same as penny shares, which points up my lack of experience back in '96. If a company is close to an IPO, you might think, Great, my shares will be liquid that much sooner. The only problem is that the grant price is higher and the grant size is smaller. Woe is me, my company got in trouble less than a year after we went public. Suddenly my shares were way, way under water. So much for the down payment. That shattered my morale, but the early birds with lots of penny shares weren't much fazed.

The moral of the story: If you're going to get into the startup racket, join when the options are very cheap and management dishes them out in big dollops. Then, when the IPO comes you'll have a bucket of shares already vested. Whether you bolt around the time of the IPO or hang on for four years, you're likely to be in the money. At least, that's what I hear the insiders do.

ANONYMOUS is a high-ranking executive at a prominent Internet company. This is the second column in his series on learning the ins and outs of Silicon Valley. He admits to being a carpetbagger. And he wishes to remain anonymous.