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Comment by cperciva | Hacker News Reader

I think there are two points you haven't considered.

First, for startups which take VC, a "modest exit" can mean that the founders get nothing. The range of outcomes where founders become fabulously wealthy but early employees do not is fairly narrow.

Second, most founders start off by not taking a salary. Deciding to be an employee instead of founding your own startup means implicitly deciding to take more salary up-front and less of a chance of holding valuable stock at the end -- put another way, reducing your risk.

That all said, whether "a fraction of a percent" equity is reasonable is an open question -- it depends on how large the company already is, how large your salary is, et cetera. You can always negotiate.

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(this is slightly off topic) I'm not crazy about how equity gets distribution in start-ups. Long story short, founders are compensated for work without salary. The problem is that stock should go to whoever contributes most to the company. Just because the founders work for free, doesn't mean they contribute the most critical work.

Here is an extreme example to prove a point: I write a business plan and successfully raise money from investors. Then I hire people to do all the work, pay them salary, and give them much less stock than I take. I have the largest employee stake, but haven't done any of the 'real' work (unless you consider fund raising to be the real work).

This example is absurd, but it's useful to my argument: the founders get their stock by working for free, not necessarily for creating the critical foundation of the business. For some reason, this has been bothering me lately. It seems more reasonable to have a system where ownership is determined by contribution... otherwise there will always be the risk of the opposite: contribution being determined by ownership.

> It seems more reasonable to have a system where ownership is determined by contribution... otherwise there will always be the risk of the opposite: contribution being determined by ownership.

Nothing is stopping you from determining ownership any way you want for your biz.

> Here is an extreme example to prove a point: I write a business plan and successfully raise money from investors. Then I hire people to do all the work, pay them salary, and give them much less stock than I take. I have the largest employee stake, but haven't done any of the 'real' work (unless you consider fund raising to be the real work).

Since I've actually done both "founding engineering" and "fundraising", I think that I'm qualified to claim that fundraising is real work.

Note that the fundraising created a structure for the engineering to take place. If the engineers feel that the structure is of no value, why did they show up?

Besides, the most likely outcome for fundraising is 0. Founding engineering is almost always compensated. The extra payoff is, in part, compensation for the extra risk.

Don't confuse effort or time with value. Or rather, if you do, make sure that the janitor makes more than you do.

if in that 'extreme example' you're putting the wheels in motion to create that value (i.e. creating a business out of nothing that otherwise wouldn't have existed), you arguably deserve the equity. turns out it's usually not that simple in practice, and most successful founders have to work their asses off and take significant risk.

that said, no one's stopping you from starting something and dishing out equity however you want :)

"... The problem is that stock should go to whoever contributes most to the company. Just because the founders work for free, doesn't mean they contribute the most critical work. ..."

Owners contribute disproportionately also by their willingness to absorb risk. It is the combination of ownership, risk and work that allow owners to take a greater share.

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