|
I think you may be underestimating the amount of risk an engineer takes on by working at a particular startup. For instance, consider your statement here: "Employees… are paid hourly or salary, regardless of the profits of the company" I can assure you that this isn't necessarily true. I've seen startups go kaput and fail to make payroll. Employees may not always be aware of the risks, but they are exposed to them. However, even that doesn't really capture the risk an employee takes on, if you look at missed opportunities as a risk. It varies, of course, as some startups pay better than others, and not all employees have the same ability to easily find jobs. But consider someone who has the ability to get hired as a senior SE at a place like google or netflix, who instead works at a startup for, say, $150k a year. That's still probably close to $75K in lost income a year, and I really do think I'm keeping these numbers conservative. You go for four years, and not including interest on investments (there are enough factors, taxes, and so forth, that I'll hand waive here)... and that's $300k in lost salary. Keep in mind, it could be considerably more! Alternatively, working for one startup means not working for another, so a relatively unknown founder may need to compensate for the lower probability that you will succeed with higher equity levels than someone with a more celebrated track record would need to offer. Lastly, you are underestimating the value of stable employment. It's as hard to understand now as it was in 2000, but I saw plenty of good programmers go without work for quite a while. Some were left in pretty dire financial situations. Some people, on H1Bs, left stable jobs that would have led permanent residency in a few more years, for startups that folded, in an environment where getting new sponsorship was difficult - in short, had they stayed with the stable employer, they would have gotten residency. Now, they had to start all over! We're in a boom right now, but the environment in a serious recession has very severe consequences for people who haven't found a place to weather the storm. Also there may simply be an imbalance here. I know it's hard to accept, but it may actually be harder to become an exceptional engineer than a startup founder. A nontechnical founder may be taking on more risk simply because there aren't as many other options. Again, it all depends on the founder, and the engineer - some founders have exceptional options and amazing track records and tech skills to boot, others are vastly overestimating the value they bring to the table. In short, to answer your last question of "why should someone should get more shares of the company without taking on more risk?" My answer is twofold. 1) they may be taking on vastly more risk than you have estimated through lost opportunities/salary/lack of job stability, 2) they may be entitled to more shares even at lower risk levels because their skills are very valuable (truth is, they may be more valuable than the founder in some cases). |
Everyone is exposed to risks. Jobs are never a sure thing in the first place and being a first employee or an employee at a newly funded startup is always going to have some risk. If you aren't willing to take on the risk that comes along with the job, you can work for a non-startup. Plenty of people do this.
"But consider someone who has the ability to get hired as a senior SE at a place like google or netflix, who instead works at a startup for, say, $150k a year. That's still probably close to $75K in lost income a year, and I really do think I'm keeping these numbers conservative."
An opportunity risk, maybe. However, if the person loses their job..they don't really lose that money. It's pretty unfair to put that responsibility on the employer and impossible to prove one way or the other (How are you going to prove an opportunity that will or will not happen??)
You could also make that same argument for any company (not just a startup). If I work at a place making $75K, I could be potentially leaving money on the table because another unknown company might want to hire me for $100K.
"1) they may be taking on vastly more risk than you have estimated through lost opportunities/salary/lack of job stability,"
Which really isn't taking on more risk in regards to the company, which is my point. We are all taking on risk with almost every decision we make. Nothing is a sure thing.
"they may be entitled to more shares even at lower risk levels because their skills are very valuable (truth is, they may be more valuable than the founder in some cases)."
They aren't entitled to anything and nearly all employees are expendable. How do I know? I was the valuable employee in many companies before I started my own. I, and everyone I ever worked with, could be replaced. Was it easy? Of course not. But the work in most companies isn't rocket science...and when it is, the company compensates the employee accordingly and tries to keep them there at all costs.
Once again, shares in the company is directly proportional to risk. If as an employee, you are willing to take a paycheck directly related to the success of the company and, or take on debt when the everything crashes, they you have the leverage to get a higher percentage of the profits.
The way I see it, you want a higher percentage of the profits for no more increase in risk, which doesn't really make sense.