
Ask HN: What equity should the first employee get? - ankitbko
What equity should first employee get given that he will be offered below market average(30% pay cut approx)? 
The role of first employee will be principal developer whereas there are 2 founders(1 technical and 1 non technical).<p>I saw a relevant post in HN before but it is over 7 years old. https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=973060<p>What is the current market trend in giving equity to first few employees?
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plumtucker
Think of your startup as a gamble (because it is). People place "bets" on the
future profits or sale price. Bets are placed in the form of UNCOMPENSATED
time, money, ideas, relationships, supplies, equipment and facilities.

Your employee is betting 30% of his market salary.

You, the original founder, are betting part or all of your market salary plus
cash to pay the 70% of the first employee's salary and anything else you have
bought.

Later you will add more people and they will place bets too.

You have no idea how long the betting will last and how much will be bet until
the company breakseven or raises a Series A round.

At that point you will be able to see how much each person bet.

Their equity should be based on their bets.

For example. If you and I start a company and we each bet $100,000 (in various
forms) before we reach breakeven we each deserve 50% of the equity. However,
if you bet $300,000 and I only bet $100,000, you should get 75% and I should
get 25%.

Anything else isn't fair.

This is the essence of the Slicing Pie model (www.slicingpie.com). The Slicing
Pie model uses the fair market value of a participant's contribution to not
only determine a fair equity split, but also a fair buyout (if any) when
someone leaves the company.

Traditionally, equity splits have been based on rules of thumb, industry
averages, negotiations or guesses about the value of the company and a
person's promised contributions.

Traditional splits are always wrong.

Slicing Pie is used all over the world.

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brudgers
If you're going to use market rate as the basis, I'd suggest using the same
source for equity that was used to determine the 30% reduction in salary.

However, to me, market trends should not be the basis for this decision
because the value of the employee will be measured against the survival and
success of the company. If the employee is fungible, then it might be better
to contract out the work than to invest in the hiring process.

Good luck.

