[gkmoyn]

This I just don't understand. The founders have the idea, leave their jobs first, and raise the money. Fantastic. Then they bring in two engineers a couple of weeks later, who quit their jobs for a nascent idea with no proof it'll work. The founders have maybe 65-80% of the company between then (then the investors and option pool), and the two engineers have 1% each. Everyone works shoulder to shoulder and the early first employees contribute critically, but the payouts on exit are off by orders of magnitude.

Why do people sign up for such lopsided payoffs?

Has any company tried a more gradual equity falloff? Say, with two founders and two employees, instead of an equity distribution of: F1=34 F2=32 E1=1 E2=1 you might have: F1=20 F2=19 E1=15 E2=14

[gaius]

The salary cut you take to join a startup ought to be worth that much equity. If the founder has put in $50k of his own savings, and you take a $50k pay cut to join, then after 1 year you have "put in" as much capital as he has.

[ulfw]

The founders usually put money in and don't get a salary. The early employees put nothing in, but get (a lower than market) salary. I am not saying the percentages are okay, but that's usually how it's rationalised. Of course this doesn't apply to Silicon Valley bubble companies, where you might raise $1MM+ on day one, put zero money of your own in and pay yourself a salary as founder from Day one. Hard to argue then that you deserve a 30x equity differential from your first employees.

[kasey_junk]

Typically the founders don't have 65-80% of the company, some future investor does.

[gkmoyn]

I'm talking about the equity on day 1, not on exit day. But even on exit, the ratio is the same between founders and employees.

[kasey_junk]

Well depending on the legal setup, the company has 100% of it's equity on day 1. Founders and employees both are given options to buy said equity. That ratio is not setup with the expectation that the founders will have 60-85% of the equity in the future.

[gkmoyn]

Sorry, my original point must have been very unclear.

In a typical startup, the ratio of equity between founder and employee #1 might be 50:1 or even much more. I am always surprised that people sign up to be employees given how fast equity grants drop for every subsequent hire. And, I wonder if any company has tried more gradual equity drop-offs. For example, where the ratio between founder and early employee grants is < 2:1, for example.