This doesn't seem to jibe with reality^. Most of the literature [0] [1] [2] suggests that the first 10 employees split 10% of the equity (with founders receiving 50% and the rest left over for VC and later employee pools). Y Combinator for instance only takes 6%. Sequoia is said to take 30%. Suggesting that an employee (any employee) is worth the same as YC to the markets seems like a hard sell.
Saying there should be a standard number for the first employee is like saying there should be a standard valuation for every startup. Sure, YC throws out a fairly generous standard valuation, but they are choosing top notch startups and trying to cultivate an entrepreneur first mindset.
To roll into any random startup and say, “I guess 1 percent seems fair” is silly. 1-3 percent is fairly standard for the first employee of a well-backed (YC / VC / Quality Angel) startup, where professionals are taking a calculated risk because the payout could be huge. They are really overvaluing every startup, but know that 1 out of 10 will pay off enough to make it up.
One percent probably isn’t fair for someone taking a reduced salary at a “startup” financed by someone’s uncle targeting a niche market. The limited upside will never pay enough to justify the money lost. If the startup isn’t financed by professionals, I don’t see 1-3 percent and reduced market as reasonable. Even then, I think it’s questionable and really depends on the product, market, founders, how far along things are, and what you bring to the table.
Certainly the value you provide and what you can negotiate are the critical parts, but I feel that a lot of startup pay is exploitative, taking advantage of younger workers who don’t understand what is going on, that the real payday in a startup is the equity and they probably aren’t getting a large enough percent to justify the risk. Why do startups payout so handsomely for founders and investors, but employees are supposed to be learning and doing it for the love?
All those investors are getting preferred stock, liquidation preferences, etc. Not all equity is treated the same and common stock is generally last in line.
For a 6 person startup where someone has made significant contributions, will continue to make them, and has taken a pay cut (in an economy with full employment), 5% does not seem unreasonable to me. If he's taken a pay cut, they probably don't even have funding yet, which means he should ask for more since it's going to be diluted massively later anyway.
Obviously if you don't ask for it, you won't get it. If you don't think you're worth 5%, why would they?
To roll into any random startup and say, “I guess 1 percent seems fair” is silly. 1-3 percent is fairly standard for the first employee of a well-backed (YC / VC / Quality Angel) startup, where professionals are taking a calculated risk because the payout could be huge. They are really overvaluing every startup, but know that 1 out of 10 will pay off enough to make it up.
One percent probably isn’t fair for someone taking a reduced salary at a “startup” financed by someone’s uncle targeting a niche market. The limited upside will never pay enough to justify the money lost. If the startup isn’t financed by professionals, I don’t see 1-3 percent and reduced market as reasonable. Even then, I think it’s questionable and really depends on the product, market, founders, how far along things are, and what you bring to the table.
Certainly the value you provide and what you can negotiate are the critical parts, but I feel that a lot of startup pay is exploitative, taking advantage of younger workers who don’t understand what is going on, that the real payday in a startup is the equity and they probably aren’t getting a large enough percent to justify the risk. Why do startups payout so handsomely for founders and investors, but employees are supposed to be learning and doing it for the love?