Something that I haven't seen mentioned: deferred pay is a huge problem in startups. Essentially, the founders are asking you to take venture risk with your salary, but they're not compensating you for that risk (I'm assuming they're not paying you 30% interest on that deferred amount.)
Letting them defer your pay actually encourages them to wait as long as possible before raising a new round of funding, because the money you're lending them is far cheaper (financially) than the money they would get from an investor. Meanwhile, the longer employees work, ringing up deferred comp, the more desperate they get to have the company succeed in raising its next round.
It's a really, really bad combination.
I think the rule has to be, if you're an employee, you should expect to get paid like an employee (i.e. now.) If you are taking risk like a founder, you should get equitized like one, not simply "repaid" your deferred comp. Put another way: you're basically investing that deferred comp in the business, but you're not getting paid for taking that very large risk with your money.
This is really good advice, I think it understates the downside risk of deferred compensation.
The investors may balk at applying their funds to deferred compensation, asking the founders to re-spin the employment agreement to convert the deferred compensation to common (or options) prior to the investment, further diluting and deferring it.
Why would the founders do that? They would be faced with a choice of no funding or new funding applied to salaries going forward.
Letting them defer your pay actually encourages them to wait as long as possible before raising a new round of funding, because the money you're lending them is far cheaper (financially) than the money they would get from an investor. Meanwhile, the longer employees work, ringing up deferred comp, the more desperate they get to have the company succeed in raising its next round.
It's a really, really bad combination.
I think the rule has to be, if you're an employee, you should expect to get paid like an employee (i.e. now.) If you are taking risk like a founder, you should get equitized like one, not simply "repaid" your deferred comp. Put another way: you're basically investing that deferred comp in the business, but you're not getting paid for taking that very large risk with your money.