[neilsharma]

I've been an early engineer (first 3) at a startup. I didn't stick around long enough to vest for reasons, but in hindsight, it wouldn't have been worth it financially even if I had. They eventually got acquired by a big brand name Silicon Valley company after 4-5 years for an undisclosed amount. My 0.4% plus salary wouldn't even break $200k/year in total unless the company sold for a fair amount above $100M.

Later in my career, I have had offers at seed stage companies. The compensations were marginally better than the one described above, but most still needed to 10-15x in value over 4 years just so the annualized comp would match the base annual comp at various series C/D companies I also had offers at.

Given the risk, often poor culture, rampant inexperience in leadership, and long hours, the upside is only worth it as an early employee if the company is a unicorn. And every founder says their company will be a unicorn...

After starting a few (failed) companies myself, I've come to adopt the mindset that the total equity allocated to the founding team (pre-seed + seed + maybe series A) should be around 20-25%. Everyone after should get 15-20%. In the event of a $100M exit, there should be no scenario in which the founders/investors walk away with a win financially, but the early employees do not. The early employees took the same risk and secured that win, and thus should be rewarded accordingly.

Edit: fixed grammar and re-ordered sections

[auspex]

At the end of the day it is a lot harder to come up with an idea, find market traction, convince people to invest in you than it is to become the third employee.

Additionally, a 100M exit isn't always a win. It depends on how much money was invested / spent to get there as well.

[neilsharma]

I agree; founders should have substantially more equity than any one early employee. But its not just about which is harder to start as (founder or early employee), but also the time/energy/emotion invested over years to bring the company to a successful scenario. Being a third employee is still pretty hard if you are working 60-80hrs/week for years and making major life sacrifices.

And you're right; $100M exit isn't always a win. That was a somewhat arbitrary milestone I used to do quick math.