

Ask HN: Why is getting more than 1% equity rare, even for the first employee? - nhayden

It seems odd that I hear people talking about getting 0.5% equity joining as the first engineer of a startup. Chances are you are getting paid at least 25% less than you could elsewhere, and let&#x27;s assume you&#x27;re making $100k&#x2F;y. Trading $25,000 of salary for 0.5% suggests the company is worth $5 million. That seems incredibly unlikely for startups hiring their first engineer, and also doesn&#x27;t account for the tremendous increase of working hours and the greatly diminished job security.<p>This is never a deal I would take, even as a junior developer not making six figures.
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Blackthorn
Because startups are based around abusing their employees who don't know
better. If you aren't a founder, you are nothing.

That's a tough pill to swallow but it's a good thing you realized it and are
doing so now, rather than after you took the job as first engineer. Your
insight is 100% correct. You, as the first engineer, are taking on a huge
amount of the risk of the startup and the work but you aren't getting the
upside like the founders are.

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trcollinson
I have always found equity to be a dubious proposition. It's rarely as easy as
1% or some fractional percentage. It's usually a fraction of one percent of
some lower class portion of a cap table that gets vested over a certain period
of time with a number of funding and sales stipulations. I was recently
offered, for example, 5% equity! That was actually 5% class E stock which
accounted for only a tiny fraction of the company.

Instead I took my normal hourly rate and told the owners they could, if they
felt generous, thank me if they ever became financially successful. This
worked well because I felt I was being paid fairly and they felt I was not
taking advantage of the company. It was less risky on my part, of course,
because I was being paid for my work. When they sold the company they did
thank me generously. I was probably one of the happiest people involved. I
didn't have to fight for my equity to be meaningful and I could just focus on
my job and the business needs all the way through the acquisition. It was a
win win all around.

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MalcolmDiggs
Well, remember that equity is typically either completely worthless, or worth
an enormous amount. That is: You can either cash out for incredible sums of
money (after an IPO for example), or just sit on your illiquid equity that
can't be sold even if there was a willing buyer.

In the unlikely event that your equity is EVER worth anything, the difference
between 0.1% and 1% and 10% is the difference between you being super-rich, or
super-duper-rich, or super-duper-mega-rich. Not a meaningful difference for
many, as far as the incentive structures go.

Keeping the slices small allows the company to scale out and make sure that
dozens or hundreds of its early employees will become very wealthy when the
IPO happens. In many people's eyes, this is better than having a smaller early
team get even richer. If the first 100 people all get 0.1%, you've only given
out a total of 10% of the company, but every single one of those people are
gonna be ridiculously wealthy in an IPO, and so you can motivate an entire
early team that way...and increase your overall likelihood of hitting that
payoff some day.

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nhayden
This doesn't really explain the value proposition to the employee, though. It
seems like the only reason someone would take these deals is because they have
some sort of fantasy about working at a startup, or really prefer the
environment to the point of working 50% more for 50% less pay per hour. I
mean, I definitely see the pros of working at a startup, but I value my time,
income, and low anxiety levels tremendously more than I value having a bit of
extra freedom in my job.

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brudgers
The startup industry and the game industry both share traits with the
Hollywood casting couch in terms of filling positions. Which is not to deny
that so long as everyone is an informed consenting adult, there's nothing
wrong with it.

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eip
Unless you are fairly certain the startup is going to make it then think of
equity as having roughly the same value as a jar of farts.

~~~
sitkack
screw top or o-ring?

