[sideway]

It is clear you are only trying to help - and honestly, thank you for that - but it is also clear (to me) you are making too many assumptions about us and our backgrounds. Simply put, we are both pretty decent engineers in our domains but also clueless re: how to structure a business. And it doesn't help that startup wisdom is very limited where we are now based.

The reason why it didn't sound like a red flag is that I'm not a founder, market fit has already been established, and google results suggest that 5% is a great deal in such cases. So the potential of going up to 9% sounds even greater to me.

My unknown unknowns are more than my known unknowns though, hence the post.

[HelloNurse]

The described terms appear to be a red flag because there doesn't seem to be any good reason to reduce your quota of the company after a peak at three years: you are going to have a large share of almost nothing, then if everything goes well a smaller share of a thriving company. It is clearly not in your interest, so it must be in your friend's interest. To avoid giving away your equity for nothing you could just accumulate shares progressively and your friend could be entitled (or even obliged) to buy some of them at a guaranteed high price.

How, and how badly, your friends will fail you is an unknown unknown and unknown unknowns are a reason to design contracts for the worst case and write them in the most robust and comprehensive way; if you are clueless about how to structure a business, hire a lawyer (and I mean your lawyer, not your friend's one). Everything you don't analyze, discuss and specify is a risk.

For example, what happens if after two year you need to stop working there? Are you going to get shares or options? Options to buy, to sell or both? At what price and with what taxation? With the same schedule as others, or with divergent incentives? What happens if the company is bought? Do you have proper limited liability? In what situations more shares or more options would cause you to spend more?

[sideway]

That is a great answer, thank you so much!