I'll add to the chorus of the I think you are being under compensated severely, although without more data is difficult for us to know by how much.
However, it isn't all that hard for you to figure it out. You just need two pieces information how much you are worth and much the companies worth.
As a starting point I'd use your hourly rate at Megacorp as minimum. Of course they don't have to pay benefits etc. Now you may well say I really don't have experience in this compared to my engineering job at Megacorp. However,a couple of things you need to consider. First of all you have one pretty unique attribute you are engineer who is will to work for stock and not cash.This isn't common. I personally don't think it is out of line to ask for twice your hourly rate at Megacorp because of this.
Second, having watched scores of entrepreuners give pitches over the last many years and can tell you that when the PHd gives his presentation to investor group. You are listed on the team as "brilliant harding work senior engineer at Megacorp". As an investor, and Nords will attest to this, I don't care how many PHd the company has if they don't have local engineer to do the actually coding and/or supervisor the Chinese/India engineers, they don't get any of my money. I
strongly recommend that other avoid investing also. Now if the guys PHd is computer science and he is actively writing software than this doesn't apply as much.But in most case the entrepreneur PHd is in some other field and without somebody to write the software all he really has an idea. Ideas aren't all that valuable.
The other thing to figure out is how much the company is worth. If the company has actually recieved funding from an Angel Investor, then this is pretty straightforward. Ask to see the term sheet the Angel got and find out what the post money valuation was.
If there hasn't been any outside investors (family doesn't count). Then valuing the company is more difficult. The first step is to ask the CEO, his value will almost always be too high for the same reasons that parents always think their babies are the most beautiful and supersmart.
The range is Nords gave is reasonable. You can also try using this somewhat simplistic
high tech valuation calculator.
The final step is to compare the value (# of hours X hourly rate) of your input with the .5% of the company and see how close they are.
Finally a comment on vesting. A four or even five year vest period for options is not unreasonable for a company that has raised a couple of million has a dozen employees and most importantly is
paying you a salary or cash compensation. In which case the stock options are a bonus. In your situation the stock is being paid in leu of cash and should not be subject to vesting.
I am attending a conference on start up next week in Silicon Valley andI will ask the SV veterans how they treat people provide services for stock.