It seems odd that I hear people talking about getting 0.5% equity joining as the first engineer of a startup. Chances are you are getting paid at least 25% less than you could elsewhere, and let's assume you're making $100k/y. Trading $25,000 of salary for 0.5% suggests the company is worth $5 million. That seems incredibly unlikely for startups hiring their first engineer, and also doesn't account for the tremendous increase of working hours and the greatly diminished job security.<p>This is never a deal I would take, even as a junior developer not making six figures.
Because startups are based around abusing their employees who don't know better. If you aren't a founder, you are nothing.<p>That's a tough pill to swallow but it's a good thing you realized it and are doing so now, rather than after you took the job as first engineer. Your insight is 100% correct. You, as the first engineer, are taking on a huge amount of the risk of the startup and the work but you aren't getting the upside like the founders are.
I have always found equity to be a dubious proposition. It's rarely as easy as 1% or some fractional percentage. It's usually a fraction of one percent of some lower class portion of a cap table that gets vested over a certain period of time with a number of funding and sales stipulations. I was recently offered, for example, 5% equity! That was actually 5% class E stock which accounted for only a tiny fraction of the company.<p>Instead I took my normal hourly rate and told the owners they could, if they felt generous, thank me if they ever became financially successful. This worked well because I felt I was being paid fairly and they felt I was not taking advantage of the company. It was less risky on my part, of course, because I was being paid for my work. When they sold the company they did thank me generously. I was probably one of the happiest people involved. I didn't have to fight for my equity to be meaningful and I could just focus on my job and the business needs all the way through the acquisition. It was a win win all around.
Well, remember that equity is typically either completely worthless, or worth an enormous amount. That is: You can either cash out for incredible sums of money (after an IPO for example), or just sit on your illiquid equity that can't be sold even if there was a willing buyer.<p>In the unlikely event that your equity is EVER worth anything, the difference between 0.1% and 1% and 10% is the difference between you being super-rich, or super-duper-rich, or super-duper-mega-rich. Not a meaningful difference for many, as far as the incentive structures go.<p>Keeping the slices small allows the company to scale out and make sure that dozens or hundreds of its early employees will become very wealthy when the IPO happens. In many people's eyes, this is better than having a smaller early team get even richer. If the first 100 people all get 0.1%, you've only given out a total of 10% of the company, but every single one of those people are gonna be ridiculously wealthy in an IPO, and so you can motivate an entire early team that way...and increase your overall likelihood of hitting that payoff some day.