[Akkuma]

Maybe I don't properly understand equity, but if two founders each take 20%, an employee pool is created with 10%, the convertible notes eat another 20%, and the seed ate 20%, this leaves 10% of shares available. How are you only going to take dilution if it increases your employees existing share value if you need funding to survive and have very little shares to give up leading into a series A?

[ryan90]

You do not properly understand equity.

If I'm a founder and I own 100% then give up half the company to investors, that 50% I give up better improve my overall outcome by at least 2x. Usually that's reflected in the overall valuation.

http://paulgraham.com/equity.html

[Akkuma]

Looking over PG's post it is about whether you should take equity and improving your outcome/valuation. Outcome seems vaguely defined and is used both as valuation and the chance of success. You as an employee want people to follow this as your own ownership drop isn't a big deal if your company becomes worth hundreds of millions through only favorable PG equation deals.

The chance of failure as a startup is significantly higher than its success. Plus, not everyone can achieve favorable offers that adhere to PG's equation. This is what real life is like, so you have to take into account unfavorable offers having to be accepted to possibly keep the lights on. Additionally, I threw up a quick scenario on http://www.tejusparikh.com/projects/equity_calculator/index....

I used a similar offer as mine, using .1% with rounds that had 1 million @ 1 million pre-money valuation, 5 million @ 15 million, 30 million @ 100 million and finally a sale of 200 million. The difference between 10k salary over 4 years in this scenario comes out to be a net gain of ~13k for an individual at the startup.

In my particular case if I switch this to a .17% offer and take a 10k salary cut, I am actually losing roughly 1k running through a scenario like that without factoring in the interest on 40k.