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Comment by 4k | Hacker News Reader

To be honest, I am half-scared of taking equity instead of cash pay. The reason is, I don't understand it as well as I should. It always scares me to think that through some VC-magic, whatever equity I have could end up nearly worthless (possibly an irrational fear since I don't understand the whole mechanism).

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This article[1] may help you to understand why you (rightly) have a justified fear of equity dilution as the company grows and (probably) raises additional capital through future funding rounds. The relevant quote: "When you are issued employee equity, be prepared for dilution. It is not a bad thing. It is a normal part of the value creation exercise that a startup is."

The article tries to explain how equity dilution (for both founders and employees) pans out. It is worth a read.

[1] http://avc.com/2010/10/employee-equity-dilution/

That's a good point -- ensure you get the same class of shares as the founders. Yes, sometimes even founder shares get diluted to worthless, but it only happens when the alternative is the company folding, in which case the shares would be worthless anyways.

Here's the math I do:

share of company * realistic potential valuation * chance of hitting it * expected dilution.

chance of hitting it ~= 3% expected dilution = 50%

So using your example:

0.0005 * 1B * 0.03 * 0.5 = $7500

No, you are right to be scared. Very few of the first employees will see anything come from equity.

Not irrational at all, the equity is most likely worthless. If you are young and want to roll the dice then it's OK.

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