[colinbartlett]

Can someone explain to me why being hired in a later round of hiring is really that much less risk? It sounds right on the surface, but is that really the case in practice? Not in my experience.

I've never known startups to be steady long-term job providers. Seems like most live on the edge, always with not more than 3 months cash in the bank. Even when you get a big round of funding and hire more people, the investors want to use that money even faster than your last round.

[tptacek]

Risk accumulates as the company operates. A risk faced by a layer 3 employee is also faced by layer 2 equity holders, even if they've left the firm.

Founder equity also compensates the founders for more than the risk that the company will fail and zero out their contributions; it also implicitly covers the upside risk of the founders, which upside was demonstrated by the fact that the founders created a company and presumably could have created others (or done something comparably lucrative) instead.

[gatehouse]

1. Investors see it that way when they participate in later rounds at higher valuations. When you disconnect from "market" it creates serious problems.

2. Skills risk, being at the top of your profession globally requires constant focus and professional support. The atmosphere at a very small company is hostile to this level of focus by necessity. It has a dulling effect.

[colinbartlett]

Your second point is something I hadn't thought of, thanks!

[pdq]

It's based on survival. If you have survived two years, there's a much better chance you will survive for the next two years, than the chance of two additional years of survival after only the first 6 months.

The longer you have survived, the more mature you likely have become. This means you go from a demo, to a prototype, to a working product, to having a pilot customer, to have paying customers.

It's certainly true that some companies get tons of money without really being a mature company (especially in these days). The investors backing them are really pushing for a moonshot, so they invest tons of money and expect to spend the money quickly. Those are cases of less mature companies basically playing the lottery, and I'd agree it's pretty risky.

[n72]

I think risk can be defined in many cases as taking less money than you could get with an established company. Basically, this discrepancy has to be made up and the one way to do that is via shares.

[reality_czech]

Personally, I don't think being a pre-VC employee is any less risky than being a founder. In both cases, if the company fails, you're going to put "worked on no-name startup that you've never heard of" on your resume and go on your merry way.

But most people don't have the connections, money, and drive to become founders. So those who do pay themselves well, relatively speaking. It's really just that simple.

[moron4hire]

Because as bad as it is for early employees, it's even worse for founders. Founders may expect for themselves to work without pay, if times get tough. Employees should either get paid or the company is done.