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As far as I'm concerned, Joel Spolsky wrote the canonical answer to this sort of question at a Stack Exchange site that has since closed, but the answer is repr

As far as I'm concerned, Joel Spolsky wrote the canonical answer to this sort of question at a Stack Exchange site that has since closed, but the answer is reproduced here: http://money.stackexchange.com/questions/26337/what-to-ask-for-on-a-business-partnership http://money.stackexchange.com/questions/26337/what-to-ask-f... In short, here are the two key points: > The founders should end up with about 50% of the company, total. Each of the next five layers should end up with about 10% of the company, split equally among everyone in the layer > What happens if you raise an investment? The investment can come from anywhere... an angel, a VC, or someone's dad. Basically, the answer is simple: the investment just dilutes everyone. He gets into more detail on specifics, e.g. vesting, early employees who don't take salary, and investors taking a large stake. (The podcast gets more into the sort of problem that plagues unicorns, but let's be honest: This sort of problem won't affect more than a handful of people reading this, if even, and a situation that rare won't be covered by a podcast or stackexchange answer even by someone as special as Spolsky or Horowitz)

kzhahou 11y ago
Under this "canonical" answer, ONE of those layers owns as much as the rest of the company combined. By some curious phenomenon, this outsized layer belongs to... the person who invented the scheme. What a twist! Founders should own as much as every single other contributor and investor, combined?? They should keep several orders of magnitude more than all the other professionals that give years of their life, and make important decisions and breakthroughs? Only greed and self-importance justifies this outlook. The company's first non-founder employee takes a HUGE risk. He joins when no one else has taken that leap of faith. He joins maybe a few weeks after the founders started up. He takes a huge financial hit, foregoing that fat salary and bonus of the established company. And without those first employees, there will not be enough product or progress to show, to recruit the next batch. Derek Sivers explains this best in his First Follower talk [0]. That employee's reward? A percent (if he's a good negotiator). Compared to the founders' 50%. How equitable! [0] https://sivers.org/ff https://sivers.org/ff
- kanwisher 11y ago
  Agreed, I don't know why anyone would come in as employee number 1 at a startup. You take a large portion of the risk with almost no upside. At least if your engineer number 20 your getting full salary and benefits and you have no delusions about your stock option value. I think Joel's post is not correct. Most people have to just discount all options to zero value
  - sbov 11y ago
    Before coming to this site I never realized how shafted employee number 1 gets at most startups. I've worked with the same CTO as employee #1 at various startups for the last ~10 years. I generally get around 5%. The idea that people would take 1% or less sounds crazy to me. It's just not worth the hours and stress it involves that early on. In return I earn about 33-50% less salary than what I probably could elsewhere. So far it's paid off for me. But if I got less than 1% instead I would be worse off for it.
  - mbesto 11y ago
    Simple. Look at early Google and PayPal employees (Marissa Mayer, Dave McClure, Keith Rabois, Reid Hoffman, etc). They are kings in the valley right now. It's an irrational aspiration, but if you happen to lock in early at "the next big thing", the opportunity doors swing wide open.
    - kzhahou 11y ago
      Sergey and Larry had 30 BILLION dollars in stock on the day of IPO. Google made a lot of multi-millionaires, but the wild discrepancy between founder and non-founder equity was present there as well.
- wdewind 11y ago
  Yes but that doesn't take into account that startups are far more likely to hire someone in a growth/reach position. Yes the employee takes a risk, but in many cases the company is taking a risk hiring them as well. Joining a startup early isn't the best choice for everyone, but for someone looking for a new role, or significant responsibility growth, it can be a great opportunity to prove yourself that you otherwise wouldn't be offered at a bigger company. Examples of this can range from someone coming out of a bootcamp into their first engineering position, or a senior engineer from a bigger company joining as CTO of a startup.

kzhahou 11y ago

Under this "canonical" answer, ONE of those layers owns as much as the rest of the company combined. By some curious phenomenon, this outsized layer belongs to... the person who invented the scheme. What a twist! Founders should own as much as every single other contributor and investor, combined?? They should keep several orders of magnitude more than all the other professionals that give years of their life, and make important decisions and breakthroughs? Only greed and self-importance justifies this outlook. The company's first non-founder employee takes a HUGE risk. He joins when no one else has taken that leap of faith. He joins maybe a few weeks after the founders started up. He takes a huge financial hit, foregoing that fat salary and bonus of the established company. And without those first employees, there will not be enough product or progress to show, to recruit the next batch. Derek Sivers explains this best in his First Follower talk [0]. That employee's reward? A percent (if he's a good negotiator). Compared to the founders' 50%. How equitable! [0] https://sivers.org/ff https://sivers.org/ff

kanwisher 11y ago
Agreed, I don't know why anyone would come in as employee number 1 at a startup. You take a large portion of the risk with almost no upside. At least if your engineer number 20 your getting full salary and benefits and you have no delusions about your stock option value. I think Joel's post is not correct. Most people have to just discount all options to zero value
- sbov 11y ago
  Before coming to this site I never realized how shafted employee number 1 gets at most startups. I've worked with the same CTO as employee #1 at various startups for the last ~10 years. I generally get around 5%. The idea that people would take 1% or less sounds crazy to me. It's just not worth the hours and stress it involves that early on. In return I earn about 33-50% less salary than what I probably could elsewhere. So far it's paid off for me. But if I got less than 1% instead I would be worse off for it.
- mbesto 11y ago
  Simple. Look at early Google and PayPal employees (Marissa Mayer, Dave McClure, Keith Rabois, Reid Hoffman, etc). They are kings in the valley right now. It's an irrational aspiration, but if you happen to lock in early at "the next big thing", the opportunity doors swing wide open.
  - kzhahou 11y ago
    Sergey and Larry had 30 BILLION dollars in stock on the day of IPO. Google made a lot of multi-millionaires, but the wild discrepancy between founder and non-founder equity was present there as well.
wdewind 11y ago
Yes but that doesn't take into account that startups are far more likely to hire someone in a growth/reach position. Yes the employee takes a risk, but in many cases the company is taking a risk hiring them as well. Joining a startup early isn't the best choice for everyone, but for someone looking for a new role, or significant responsibility growth, it can be a great opportunity to prove yourself that you otherwise wouldn't be offered at a bigger company. Examples of this can range from someone coming out of a bootcamp into their first engineering position, or a senior engineer from a bigger company joining as CTO of a startup.