This is actually pretty wrong. Most likely they knew the real valuation was closer to $1, and so similar to the trajectory of a missile that goes up first so it can coast down, the IPO valuation is propped way up, to give plenty of room for it to fall during the lockup period and still be overvalued.

Making ~4x the (approximate) real valuation (which is already probably way higher than what they paid per share to invest) probably meant a significant return. Kind of like private equity strategy from inside a start-up.

I’m sure that employees with relatively low amounts of options plus a lockup period, needing to use their own money to buy the stock, with some more recent employees at relatively bad strike prices by comparison, did get screwed over.

Which is why you never, never accept options-based equity as compensation, and never accept an ultimatum between a competitive salary + low equity vs. less than market salary + higher equity. The lottery winners for whom these arrangements worked out should not factor into your judgment. And likely any experienced engineers should be requiring bonuses, meaningful severance, comprehensive insurance and a host of other forms of compensation.