I've been offered a package that includes 100k stock options at 5 dollars a share. They vest over 4 years at 25% a year. Does this mean that at the end of the first year, I'm supposed to pay for 25,000 shares? Wouldn't this cost me 125,000 dollars? I don't have this kind of money.
At the end of the first year, you will generally have the option to pay for the shares. Yes, this means you have to use your own money.
You generally dont have to buy ANY until the whole option vests, after 4 years in your case, at which point you either buy, or you are considered 'vested' (you have equity in the company without buying) or the option expires worthless, with you losing your window to buy into the company. This gives you plenty of opportunity to evaluate the company's growth prospects and viability over this time. Regarding options expiration the contract can have an arbitrarily long expiration date, like 17 years
You not having the money or not isn't a consideration in this matter. Negotiate a higher salary instead. I've told several companies that I don't want their equity despite my interest in their business model and product. YMMV good luck
also options can come with tax consequences, or none at all. its not a raw deal but you need to be able to look at it objectively.