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> Throw out the old cap tables. A founder doesn’t get 30% and an early engineer shouldn’t get 0.25%. Those are old numbers from when you had to raise VC capital

> Throw out the old cap tables. A founder doesn’t get 30% and an early engineer shouldn’t get 0.25%. Those are old numbers from when you had to raise VC capital before you could build a product. Before everyone could and did start a company. Choice quote. I'm kind of amazed this isn't brought up more.

gfodor 15y ago
Agreed. This shift hasn't taken root yet and I think you're going to see a lot of startups that succeed caught on to the fact that the extra early-stage equity they can retain (due to less onerous funding) is best given to the first N employees than held onto by the founders. Taking the equity the VC's normally would have gotten and giving it to your first several employees now opens the door for you to hire people who are at the top of their field as your first employees, if they are not totally risk averse. I think it might turn out we end up inventing a new term for these "post founder, pre employee" folks since they are going to be a big differentiators for this generation of startups.
- danielharan 15y ago
  Exactly. Hiring 2 top engineers for 5% each is way less dilutive than taking 300k at the powerpoint stage.
  - sriram_sun 15y ago
    If we are talking powerpoint stage, there is no revenue coming in. Would top engineers settle for 5% with no salary?
    - gfodor 15y ago
      There are definitely stages in the life of a startup that are pre-salary but less risky than ground zero. For example, some initial market validation, users, or even paying customers could be there. Or, there could have been a significant engineering breakthrough or two. Or, simply the fact that the startup has survived its first pivot is evidence the team has staying power.
  - its_so_on 15y ago
    especially if you've had an ethical bypass and are willing to go Zynga on them later. Engineers are a lot easier to push around than angels (or VC's) are.
    - danielharan 15y ago
      I'm starting my second startup and in it for the long haul. It would be incredibly short sighted of me to do this to early employees. Of course, you can never be completely sure of the founder's character so trust is always required.
webspiderus 15y ago
completely agree. as someone that's just about to graduate, i have to say i was a little shocked when i figured out this is the way things are. the difference between the first engineer and one of the founders never seemed so categorical to me, and this was one of the few things that made me feel it's not really worth joining a startup as early as I'd like (to work on interesting+useful things, have impact, etc.) unless I'm actually involved at the founding stage.
- dman 15y ago
  Yes this is one of the main reasons why I am not working for a startup currently even after running my own startup for 2 years and having loved the experience. Over the course of interviewing with multiple startups and getting offers the amount of equity being offered was so little that the companies would have to hit ~250 Million valuations for the options to be worth in the mid 5 digits. From my perpective the risk-reward ratio for the first 10 engineers is much much worse than that for the founders. I do intend to go back to founding something again in a couple of years.
  - harryh 15y ago
    mid 5 digits is 50k? 50k / 250M = 0.02% That's perhaps ~10x less than is typical. I'm not saying your general intentions are wrong, but you should be able to get a much better deal from startups than you have seen to date if you want. I'm moderately surprised at your experience.
    - dman 15y ago
      I cant name and shame the companies but I was surprised about the offers. EDIT: fwiw - for the purposes of the original post I am not including offers that I got where I was offered a higher stake but where I did not have a high conviction about the startup.
    - deleted 15y ago
      [deleted]
    - deleted 15y ago
eykanal 15y ago
I'm curious what Paul Graham and other top VCs think about this. This would be a pretty big shift in how companies expand early on, and it could potentially change the personality of the first employee.
- amorphid 15y ago
  Hiring a good person for cheap plus mucho equity is easier than raising money, at least when smart + learn in the job is a possibility.
  - danssig 15y ago
    After the demonstrations that money not in-hand is likely to evaporate before you can get it, is that still the case? Personally I ignore equity completely when deciding if a position is well paid or not. Equity is like a lottery ticket a friend buys me: I'll keep it around and when the time comes I'll see if I won, but I'm sure it's actually worthless.
    - amorphid 15y ago
      I suspect that just means you don't want to help someone start a business where it is hard to measure how effort in generates money out. If a buddy shows you a picture of pirates burying treasure in your backyard and then hands you a shovel, it isn't a big stretch to imagine you digging a hole for a few hours for no pay :). On the other hand, an idea scribbled onto a napkin by a non-expert isn't so compelling without cash to go with it.
      - danssig 15y ago
        Your comment hints at the issue. It isn't measuring effort in vs money out, it's likelihood of reward for effort. At this stage it's clear that if you count options and even equity as zero you'll often be right. If a startup hands me a picture of treasure in some place I can quickly get to (i.e. little investment on my part) and a shovel, I'll invest a couple of hours for the chance of getting rich. If they hand me a lottery ticket that they can void if it did happen to win, I'm not going to spend months or years slaving away for that.

gfodor 15y ago

Agreed. This shift hasn't taken root yet and I think you're going to see a lot of startups that succeed caught on to the fact that the extra early-stage equity they can retain (due to less onerous funding) is best given to the first N employees than held onto by the founders. Taking the equity the VC's normally would have gotten and giving it to your first several employees now opens the door for you to hire people who are at the top of their field as your first employees, if they are not totally risk averse. I think it might turn out we end up inventing a new term for these "post founder, pre employee" folks since they are going to be a big differentiators for this generation of startups.

danielharan 15y ago
Exactly. Hiring 2 top engineers for 5% each is way less dilutive than taking 300k at the powerpoint stage.
- sriram_sun 15y ago
  If we are talking powerpoint stage, there is no revenue coming in. Would top engineers settle for 5% with no salary?
  - gfodor 15y ago
    There are definitely stages in the life of a startup that are pre-salary but less risky than ground zero. For example, some initial market validation, users, or even paying customers could be there. Or, there could have been a significant engineering breakthrough or two. Or, simply the fact that the startup has survived its first pivot is evidence the team has staying power.
- its_so_on 15y ago
  especially if you've had an ethical bypass and are willing to go Zynga on them later. Engineers are a lot easier to push around than angels (or VC's) are.
  - danielharan 15y ago
    I'm starting my second startup and in it for the long haul. It would be incredibly short sighted of me to do this to early employees. Of course, you can never be completely sure of the founder's character so trust is always required.

webspiderus 15y ago

completely agree. as someone that's just about to graduate, i have to say i was a little shocked when i figured out this is the way things are. the difference between the first engineer and one of the founders never seemed so categorical to me, and this was one of the few things that made me feel it's not really worth joining a startup as early as I'd like (to work on interesting+useful things, have impact, etc.) unless I'm actually involved at the founding stage.

dman 15y ago
Yes this is one of the main reasons why I am not working for a startup currently even after running my own startup for 2 years and having loved the experience. Over the course of interviewing with multiple startups and getting offers the amount of equity being offered was so little that the companies would have to hit ~250 Million valuations for the options to be worth in the mid 5 digits. From my perpective the risk-reward ratio for the first 10 engineers is much much worse than that for the founders. I do intend to go back to founding something again in a couple of years.
- harryh 15y ago
  mid 5 digits is 50k? 50k / 250M = 0.02% That's perhaps ~10x less than is typical. I'm not saying your general intentions are wrong, but you should be able to get a much better deal from startups than you have seen to date if you want. I'm moderately surprised at your experience.
  - dman 15y ago
    I cant name and shame the companies but I was surprised about the offers. EDIT: fwiw - for the purposes of the original post I am not including offers that I got where I was offered a higher stake but where I did not have a high conviction about the startup.
  - deleted 15y ago
    [deleted]
  - deleted 15y ago

eykanal 15y ago

I'm curious what Paul Graham and other top VCs think about this. This would be a pretty big shift in how companies expand early on, and it could potentially change the personality of the first employee.

amorphid 15y ago
Hiring a good person for cheap plus mucho equity is easier than raising money, at least when smart + learn in the job is a possibility.
- danssig 15y ago
  After the demonstrations that money not in-hand is likely to evaporate before you can get it, is that still the case? Personally I ignore equity completely when deciding if a position is well paid or not. Equity is like a lottery ticket a friend buys me: I'll keep it around and when the time comes I'll see if I won, but I'm sure it's actually worthless.
  - amorphid 15y ago
    I suspect that just means you don't want to help someone start a business where it is hard to measure how effort in generates money out. If a buddy shows you a picture of pirates burying treasure in your backyard and then hands you a shovel, it isn't a big stretch to imagine you digging a hole for a few hours for no pay :). On the other hand, an idea scribbled onto a napkin by a non-expert isn't so compelling without cash to go with it.
    - danssig 15y ago
      Your comment hints at the issue. It isn't measuring effort in vs money out, it's likelihood of reward for effort. At this stage it's clear that if you count options and even equity as zero you'll often be right. If a startup hands me a picture of treasure in some place I can quickly get to (i.e. little investment on my part) and a shovel, I'll invest a couple of hours for the chance of getting rich. If they hand me a lottery ticket that they can void if it did happen to win, I'm not going to spend months or years slaving away for that.