Comment by khazhoux | Hacker News Reader

Comment by khazhoux | Hacker News Reader

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Because while you're strictly right, in a legal and facts-on-the-ground sense, there's an element of trust in these decisions. And the (not-legally-binding) concept of "we're in this together" is part of the startup story, and part of the pitch that company owners use to attract employees away from other high-compensation opportunities.

Employees regularly (as in, basically always) join startups for peanuts in equity compared to the equity held by founders. And they're told "we're in this together, we'll win or lose together"... without realizing that the stock they received was so tiny, that the founders' Win means a private island and trust-fund grandchildren, while their own Win will be one fifth of a down payment on a house, even in the best outcome.

The cap table isn't revealed to job candidates, but they still get vague reassurances that they're being offered a "great package." If they saw how their package compared to the founders' holdings, I think employees would demand a hell of a lot more equity, for the risk they take.

> without realizing that the stock they received was so tiny, that the founders' Win means a private island and trust-fund grandchildren, while their own Win will be one fifth of a down payment on a house, even in the best outcome.

With 1200 employees, your share will inevitably be a tiny fraction.

At that scale, of course. But what I observe is that the inequity (through lack of information) starts at day one: the first employee (often for a startup with zero code written yet) signs up for 1% because this is "industry standard" and because they believe that the investors and option pool is the bulk of the remaining 99% -- not realizing that the two founders might hold 80% of stock. And the inequity keeps propagating: the fifth employee agrees to 1/20th of what the first employee had, and so forth.

I really think non-founding employees (especially early ones) would be shocked if they saw what the cap table really looked like when they signed up.

But this only makes sense. If you're the first employee, then there's zero "social proof" that the startup is going anywhere. If you're the nth employee, the greater n is, the more social proof there is that the company is going places. Hence, the less equity you're going to get.

If one wants founder equity, found a company!

I'm not arguing against decreasing equity as a startup matures, though. I'm saying that equity decreases at a much faster rate (by an order of magnitude, sometimes two) than the risk. Again, the common real-world example (in SF) of founders having 50-80x versus Employee #1, in the case when there's zero code and zero product, just a napkin sketch and founders who convinced investors of a vision (which will anyway change once development starts). Or employee #8 who is an order of magnitude lower than emp #1, when the product hasn't launched yet.

It is my opinion that one reason people sign up for such low equity, is because they lack information about how equity is divided overall. Employee #1 is OK with 1% because he mistakenly believes that investors hold 40%, founders have 10%, and the option pool is the remaining 49% -- when really the option pool was 8% total until the next round of funding, and the lion's share overall sits with the founders.

The founder organized capital more productively than it sitting earning 3% is thus able to command a large ownership level.

Regardless of one's knowledge or feelings, the math doesn't work to keep giving out 1% shares to new employees. You've got to drop it by an order of magnitude, quickly followed by 2 orders, etc.

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