My startup is going to be crushed by my employer

You have not provided enough information for anyone to give you a definitive answer as to your rights and obligations. A lot depends on (a) the specific language in the agreement and (b) where you and your employer are located.

That said, if you are in the U.S., almost every state has at-will employment, which means that the employer can terminate the relationship at any time for any (non-discriminatory) reason (and the employee, too, can terminate the relationship at any time). Furthermore, few employers will retain an employee who is directly competing while an employee, nor are they obligated to do so. So my guess is that you will have to decide whether your employment or your startup is more important to you.

Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.

This is a sticky situation. First and foremost, you need an attorney to look at the language and give you advice on both the letter and spirit of the law. Secondly, ask your attorney to look at recent cases on this issue. There may not be anything on point (exactly the same issue as yours) but the courts provide guiding principles upon which the intention of a non-compete is based. We also protect and encourage innovation so you are not necessarily on the losing end of this one.

After you talk to your employer, and assuming you want to keep your job, you will need to have an attorney that works with you to communicate with your employer in a manner that is least likely to get you the boot. It is possible.

Good luck and do spend some time thinking about what your most favored outcome is - present this to your attorney and see if you the two of you can craft a response to get you that outcome. You potentially have a lot of options. This can be a good thing!

It's a no-win situation. If you cave to your employer, he will own you. If you decide to fight, he'll fire you and possibly sue you. You might win - but unless you can prove he got the idea from you and not the other way around, your chances are not good. Also, you're going to have a very hard time proving you're not using knowledge from your job given your employer has "inadvertently" started working on the same project.

Options:

1. fight. But justice is anything but free.
2. sell. Has the advantage of putting some money in your pocket, and if you make clear in the sales agreement that he acknowledges that your efforts were neither competitive or based on knowledge you gained while in his employ, he pretty much waives his case against you.
3. leave.

In any case, you have got to nail done ASAP when you started the project, what information you used etc. Then talk to him, and make clear you started this before you were employed.

Also, think about what can happen at max. IMO you may lose your employment with that org. You can weigh your options which one to choose.

Can you prove that you started working on your start-up first? Do you have at least files with older datestamps then the date on the signature line of your non-compete? If yes, will your employer be reasonable enough to accept those or will it be more cost-effective for you to see a patent attorney?

I think Daemens short comment to the OP is a good one.

If I ran a company (which I kinda do), and was considering a new product build, I would view it as a positive if a product dropped into my lap via one of my employees. I would definetly be open to discussing a purchase or a commercial relationship with said employee to reduce the risk and cost of a build.

More details are needed but there is definetly scope here to turn a bad situation into a win-win for both sides.

The easy and obvious answer is if you enjoy collecting the money your employer is paying you, you stop your side project and focus on your job. If you can live without the money, then quit the job and pursue your project fulltime. I don't see any other realistic options.