[webspiderus]

completely agree. as someone that's just about to graduate, i have to say i was a little shocked when i figured out this is the way things are. the difference between the first engineer and one of the founders never seemed so categorical to me, and this was one of the few things that made me feel it's not really worth joining a startup as early as I'd like (to work on interesting+useful things, have impact, etc.) unless I'm actually involved at the founding stage.

[dman]

Yes this is one of the main reasons why I am not working for a startup currently even after running my own startup for 2 years and having loved the experience. Over the course of interviewing with multiple startups and getting offers the amount of equity being offered was so little that the companies would have to hit ~250 Million valuations for the options to be worth in the mid 5 digits. From my perpective the risk-reward ratio for the first 10 engineers is much much worse than that for the founders. I do intend to go back to founding something again in a couple of years.

[harryh]

mid 5 digits is 50k? 50k / 250M = 0.02%

That's perhaps ~10x less than is typical.

I'm not saying your general intentions are wrong, but you should be able to get a much better deal from startups than you have seen to date if you want. I'm moderately surprised at your experience.

[dman]

I cant name and shame the companies but I was surprised about the offers. EDIT: fwiw - for the purposes of the original post I am not including offers that I got where I was offered a higher stake but where I did not have a high conviction about the startup.

[Timothee]

That might be true but I find 0.2%, thus $500k for a $250M valuation, still very low.

$250M valuations are quite an achievement already and $500k, while it will pay off a mortgage, is not life-changing. (not talking out of experience here :)) So, an early engineer who will most likely be very instrumental to bringing the company to such a valuation ends up with a(n admittedly very) nice bonus, while founders do end up with life-changing wealth.

[harryh]

Ya, I was just saying that is sounds like dman wasn't even getting "standard" offers. I wasn't really weighing in on whether the "standard" offer makes sense or not. It's a challenging question.

[danssig]

Typical to what? What is offered? I'm not sure why we're even still talking about what is offered since it should be clear by now that early employees won't be getting that anyway.

[tzs]

> the difference between the first engineer and one of the founders never seemed so categorical to me

The categorial difference is that if the company flops in a few months the founders are out a lot of money, whereas as first engineer you are merely in a similar position to before you took the job, but with some nice experience on your resume and a few months worth of pay in your bank account.

[moe]

Wait, what?

Most founders I know would pay themselves a salary after the first funding round. A small one perhaps, but I don't think the difference is as big as you make it out to be. Especially when you consider that the first engineer in a startup gets at least the same workload as the founders.

[tzs]

That assumes there is a round of funding. Not all startups are in the kind of sexy areas that cause VCs to throw money at them. Some are funded by the savings of the founder (and sometimes a second or third mortgage on his house). At that kind of startup, the founder often only gets paid his salary if the company has profits.

[danssig]

>whereas as first engineer you are merely in a similar position to before you took the job

Not at all. An Engineer can only have one job at a time so they most likely quit one to get this one. Now they have nothing, no income at all. Some founders will be in a similar position but many still won't have to get an office job if their startup fails.

[earl]

Of course, less the quite possibly considerable difference between market rate and the reduced rate the engineer is being paid. If you go by Fred Wilson's numbers [1]: $10k per month per engineer, the engineers are probably accepting a $60K/year salary. That's an enormous pay cut for me at least, and well below market for virtually all engineers. So certainly the founders are taking very little money, but the engineer may well be making a $4k/mo investment as well...

[1] http://www.avc.com/a_vc/2011/12/burn-rates-how-much.html

[davidcuddeback]

$10k/month x 12 months/year. Isn't that $120k/year? How did you come up with $60k? This is a serious question, because I assume there's an unspoken assumption in your post.

[earl]

David -

That's the fully loaded cost of the employee, so the sum of salary, payroll taxes, health insurance, unemployment insurance, office rent, and whatever else I'm forgetting.

Edit: also called the fully burdened cost