If they're not paying you and you accept <10% equity, you're getting ripped off.[1]

But if they've raised money and you're drawing a salary? The startup is massively de-risked. You should accept far less equity. You take on virtually none of the downside risk and still participate in the upside risk.

As an employee, the situation you want to avoid is the quick flip. Do the case analysis:

Failure: better to be a first employee than a founder. You should be better paid, and your 3% of $0 is the same as 50% of 0.

Quick flip (aka HR acquisition): Founders make out much better than first employees, since they'll typically be granted large retention bonuses. Best case you get a free option on a job at the acquirer which probably comes with a reasonably good bonus structure for the first few years.

Acquisition for value: Everyone gets rich. Founders get very rich, first employee gets much richer than he possibly could have working any normal job.

Don't work for people who want to flip their company to Google in 6 months. Work for people who want to change the world.

[1] Unless you've co-founded it with like, Steve Jobs. In which case you should probably take 1% if that's the offer. Also, you are probably a necromancer.

"Don't work for people who want to flip their company to Google in 6 months. Work for people who want to change the world."

That's a great point. I really think any entrepreneur looking for a quick out is another sign of an (un)intentional scam artist.

You make a very good point.

Is someone who is doing a startup in hopes of hitting the startup lottery (when you get bought out) a scam artist?

As a non-founder you don't get the 'oh shit, pay day, um, have I got the money' or the 'right, I've promised X, Y to A and B yesterday. Damn'. Or the 101 other little things and worries and anxieties you experience.

I'm not saying it especially takes a lot more skill but the level of stress and responsibility of the first non-founder is considerably less than the founders and always will be.

So there's that.

You also shouldn't expect more pay than a big company, a startup can be a lot more fulfilling and that's what you go there for.

You seem to know that from your first sentence but have put some strange mental barriers around taking the plunge. It's like the difference between doing extreme sports or going golfing. Both are past-times, just very different experiences that elicit different desires in different people.

EDIT: No idea at all why this was d/ved, if you don't want other people's experiences on HN... d/v away

>> As a non-founder you don't get the 'oh shit, pay day, um, have I got the money' or the 'right, I've promised X, Y to A and B yesterday. Damn'. Or the 101 other little things and worries and anxieties you experience.

To an extent, but I would be almost as exposed to the risks as the initial founding team in terms of it crashing and burning.

And you know what? In a way, thats fine. Part of the appeal of joining the startup is that you get to live on the edge a little. You celebrate the wins and mourn the losses, you fake it till you make it, you buy into the mission and give everything you've got to try and make it a success.

But despite my best efforts, I just don't think I could do that to my fullest for 1% and a market salary. I'd of course give it my best shot, but part of the appeal of doing the startup is that I would want to give more and go all in on the project.

This might just be the fact that I believe I have it in me to do it myself, and I'm at a time in life where I will have a real go in the not too distant future.

But the problem nowadays is that most good entrepreneurial developers will be thinking along similar lines :)

To be clear, I think early stage startups such as the ones straight out of YC should really open the purse strings with regards to giving away vesting equity to early engineering hires. 1% just isn't going to cut it for the top few % of talented, entrepreneurial developers with requisite level of experience - who will likely have very high opportunity to costs at the moment.

There is much to learn, my friend.

With the exception of the startup porn you read on TC, the only companies that raise multi-million dollar Series A rounds already have traction. The difficulty in gaining traction in today's saturated marketplaces should not be underestimated.

In most standard Series A rounds the company creates a 15-20% option pool and the investor gets around 30% of the equity.

Assuming two co-founders and a small seed round, the founders each likely own 18-20% of the company. They also went without pay and healthcare for a while, built a product, got traction, raised a real round (which is more difficult than it seems you believe), and are giving you upwards of 10% of their own stake. In addition, it is likely that the founders are taking below-market salaries while paying everyone else near -market salaries. That said, 1-2% for an early, senior hire is right on the money.

It might be the case that its generally not economically sensible for talented engineers to join validated startups.

This also explains the "its so hard to hire" sentiment.

@benjaminwootton: reasonable argument that typical early stage employee equity is dwarfed by what engineers can get by founding their own company and that engineers might rationally require larger salaries at startups to compensate for failure risk (sucks to job hunt, even if its not hard to get a job).

on the other side, the founders who are trying to give away 120k and 1% to get a great hire have the responsibility of maximizing their own total EV as well, so if they were to give away 10%, it would have to be clear that the hire would be expected to grow the total founder EV by more than 10%, and in fact, more than that to compensate for the risk of the failure of the engineering hire to do so.

So if the founders are sitting on a validated, funded, post-revenue startup, its not necessarily enough for the engineering hire to help accelerate product. they have to make the total pie bigger, and by enough to compensate for the variance in outcomes for how much bigger they can make that pie.

So if you want 10%, and you're trying to join a startup with 100k/yr in revenue, you can't just help them get to 1mm/yr in revenue 1 year faster. you have to demonstrate that if you forked the universe into two paths, one where the founders gave you 10% and salary, and one where they walked away from you, the present value of the cash flows (or some metric) of they company in the "hired you" scenario is:

    1. > 10% better with 100% certainty
    2. more than > 10% + x% better with something less than 100% certainty to compensate the founders for the variance...

The more established / validated the startup, the harder it is for the engineer to deliver sufficient value or certainty to the founders to warrant more than the standard early-stage hire stake.

So generally these decisions are probably made with non-economic reasons, like "We like each other" or "I get off on working on bleeding edge technologies" or "The engineer is willing to give up substantial economic EV in return for te ability to feel like part of a team or affect decision making".

TLDR: engineers work for companies when the needs of the engineer and the company converge. the bid and ask between "what an engineer needs/delivers" and "what the startup offers/needs" separate as early stage startups move past "MVP" into being somewhat validated.

Tech blogs make it look easy, but raising hundreds of thousands or millions in funding is actually very difficult-most startups try to raise money and fail. You could be the most brilliant engineer in the world, but if you're not good at sales, you won't be able to get funding. Your only options for significant upside are thus either to: 1. Find a sales/business cofounder 2. Join a startup for a mix of salary and equity Any startup giving away a few points of equity is likely well funded, removing a significant amount of risk for you.

Depends on what you're looking for, really.

However, early engineering hires have a great opportunity to learn things that they can't learn at a bigger company. An engineer knows how to code, but they may not know how to design products, do user testing, make partnership deals, run surveys, raise angel, tune virality, create ad campaigns, find good advisors, recruit, market, sell, do user research, or raise VC money.

If you are at a large, low-risk company, most of that stuff will be handled by somebody far away and uninterested in talking to you. At a small startup, it will be done by one of a small number of people you'll know well and have unlimited access to.

If you intend to found your own company someday, I think there's no better way to learn how than to work closely with people who have done it before and are doing it again with you right there.