[acjohnson55]

One does not simply "raise more capital" to pay employees market wages in cash. That might very well be the morally superior approach, but it simply doesn't match reality. Most startups can't get that kind of capital at all, let alone on terms that would be worthwhile to the founders. Besides, the labor market is largely clearing, so you're not going to shame founders and investors to put more cash into comp. The much better bet is to educate employees so they can advocate for themselves.

> "Don't defecate where you eat; don't invest where you work."

That sounds pithy, but I don't see why that's good advice. If you work in a role where you can have a significant impact on the success of your employer, that can be a very advantageous situation compared to being a random investor in a venture you have no agency within. You also potentially have a lot more visibility than a silent investor. These are reasons one might choose to take equity over cash.

Had you argued that it might not be a universally great idea, from a portfolio management standpoint, to trade a lot of upfront cash for illiquid, volatile stock option, I'm with you.

[logfromblammo]

In practice, the people that can have a significant impact on the success of their employer are officers, or at least upper management. And they will also be in a position to negotiate their equity compensation. They don't need to take sound-bite advice from the Internet.

If you don't have a contract (you are "at will"), don't invest in your employer, ever. If you do have a contract, but can be fired for any reason that is outside your control, don't make an investment that is not completely liquid. If you can make the stock price move unilaterally, perhaps you should consider shorting it, quitting, and airing all the dirty laundry in public? That would be a dick move, but so is diluting all your employees into oblivion so you get a bigger share of the payout.

If one cannot raise enough capital to execute on the business plan, I question the value of the investment. In any case, the market is not homogenous. If you can't afford the market wages in Silicon Valley, move your startup to the Rust Belt. If you can't afford those wages, hire remote from Britain, Australia, or India. If you can't afford that, try your hand at lowballing freelancers. Or maybe hire one 40+ developer at 120% median pay instead of two 25-year-olds at 80%. Tricking your employees into thinking you're paying them more than they're actually getting is not a viable way to conduct business in the long run. Believe it or not, there is value in not being a scumbag employer.