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If you're at a startup as employee like 1-5, you're going to need to believe the equity is worth something.

Otherwise why would you want to work at a startup?

The company doesn't have money to pay you market rate, and if they did, they shouldn't be spending it hiring one person.

Lets say you're market rate is $120k, but they offer you $65k, and 3.5% equity. Yes that might be insulting, but with that $55k difference, they could conceivably hire a 2nd (perhaps less senior) engineer, which will make your life a lot better, and increase the chances of the company succeeding.

So we founders offer you equity (in a pretty sizable chunk actually), in exchange for your hardwork and talents, recognizing that you should be paid more, but you're taking a big cut to help us build something cool.

If your goal is to make market salary, and wealth maximization, dont work at a startup (prior to say Series-C). You will be underpaid, and overworked, but you will get a good equity chunk, so that if the company is successful (it wont), you will be well rewarded.

Now if you've gotten fired after a month, chances are you're not the right fit, or worse, you were a detractor. But being worried about being fired, is generally an irrational worry, because it's hard to hire someone, let alone someone willing to work a lot, and for little pay.

Sure, but now at 65K, I can barely afford my rent. You're asking me to live paycheck-to-paycheck for the idea that you MIGHT make it, and we all know the statistics for startups: most of them don't make it. So now you're asking me to take a 55K salary cut, promising me imaginary money that will be (I'll give you the benefit of the doubt) worth the difference in 4 years, and in the meantime, I can barely pay my bills, barely have a social life (because I'm working so hard to make your company successful AND because I have no money).

I don't mind working at a startup, but like OP said and like I've said before, I would really have to believe in the company, and it would have to be a C-level position or better. In my experience, I get that 55K cut and 0.5% equity, which just isn't quite worth it.

But again, like OP said, the goal is to "pay market rate as soon as you can," and I'm merely pointing out that equity is not a replacement for salary -- my landlord won't accept equity as rent. You still have to pay me enough to not feel like I'm drowning -- and the equity has to be enough to make me want to work my ass off to make your company succeed.

Have any founders tried recruiting with an equity + salary offer where for the first year, the equity offer is translated into salary? Not like Buffer's offer of equity instead of salary, but as something like "we acknowledge you could be working hard for something that never vests. Your fair value is X. We've offered you .5X + equity. For the first year, we are willing to offer you .8X, which then drops to .5X." Any raises could be translated into a percentage raise, or could just be added to the changing basis.

It's a weird idea to have your salary drop after a year, but it might be an interesting avenue to pursue.

However, successful startups usually don't have the salary issues outside of the beginning, so it may not work just because of that. I'm just really interested in trying to perfectly align incentives, and the founder vs. first employee one is the toughest nut to crack for me.

I know of some companies that do this. The drop isn't quite as large as you describe, but it's the same idea.

I have heard of some companies offering the employee a couple of options along the salary/equity continuum i.e.:

  a. Salary A , Equity E
  b. Salary B > A, Equity F < E
  c. Salary C > B, Equity G < F

That way the employee can decide what works best for them.

It can't be as bad as the place that offered me $55k and zero equity as engineer #3. I was given only a verbal suggestion that "if in six months or a year we find you've become an invaluable member of the team we can talk about some equity."

Yes, that's bullshit. They should have their equity setup in a way that makes it easy for them to recoup it, should you end up leaving the company.

>You can sit there and tell me your company is worth $1B, but your equity is worth $0 until you can actually pay out on the stock.

Right, just like you're worth $0 the minute you don't have a job, and not, say, some value that is tied to how much you will be earning momentarily. Since you are worth $0, it only stands to reason that unless you can sign your next software engineering job within 2 hours, it is better to immediately accept any job in the city where you can start the same day, for example maybe a McDonald's will hire you for $6/hr. Since you are worth $0, of course you should accept $6, since it's infinite times what you're worth. It's like someone making $60K being offered a $10M job. Jump on it! /s

Meanwhile, here in the real world worth isn't "$0 until you can actually pay out". If you can't judge a team and startup, then by all means, this job might not be for you. But the idea that equity is worth $0 until it's paid out, is akin to saying that the next version of some product is 0% finished until you can buy it in stores, at which point it's 100% finished.

That might be useful to an outsider, but it's rather silly to someone who knows the situation more closely and is trying to establish whether it's worth something or whether they can meaningfully contribute.

Why did John Carmack join Oculus Rift, even though it's "0% finished" in the sense that you still can't buy a retail version in stores?

Because he takes the time to come to a much more reasonable valuation of company status and where it's going.

Your comment is no better than saying your exact worth is just your next paycheck, or that products are 0% complete until they're shipped, or that companies are worth $0 until an exit. Pure silliness.

It IS worth $0 of real money. Future money / as risk? Sure, it's worth whatever the founder says. But in the end, equity doesn't pay the bills until I can cash out, so if you offer me 30K less than what I tell you my current salary is, I'm very, very, very unlikely to take it, because at the end of the day, I still have to pay my rent. My landlord won't except "Well, in a year, I get 25% of my stock options, and I can pay you then" as a rent check.

Your equity is worth $0 cash right now. It's not a replacement for salary, it's an incentive to do well. If we do well and if we successfully exit or get to the point where this sheet of monopoly money is exchanged for $X, then it can be a replacement for salary. Until that time, it's a risk and not a salary.

When it comes to salary, I need enough to be assured that I can pay my bills on time each month. Once you meet that minimum threshold, then we can start talking about equity. What you cannot do is say "Well, instead of 30K salary, we'll give you 0.5% of what we imagine our company is worth," which is only slightly better than saying "Instead of 30K salary, we'll give you monopoly money."

Furthermore, in some cases (including my own), people are already at jobs where stock has vested or the company has been acquired or IPO'd or is otherwise successful from an equity standpoint, and in those cases, your equity is worth even less, because I'd have to give up X percentage of my current salary AND my currently vesting stock (that may be worth real money) to work for your company where you may or may not get to the point where you're successful enough to pay out on stock.

The above is part of the reason why I said as a senior developer, you have to be either a founder (or C-level employee) or really, really, really, really, really believe in the product. Both are true in John Carmack's case, by the way. He fits my exceptions, so you kinda picked a poor example, there. :)

I get your point, though. I just happen to disagree with you.