First employee of startup? You are probably getting screwed
First, I disagree that early employees of startups are "probably" getting screwed, but it definitely can happen, and often does to people who don't know their real value.<p>The part of this that resonates with me isn't the mathematics. The math isn't very relevant because there's a really large unknown: the eventual value of the company. One percent could be a lot of money, or it could be nothing. There's also the matter of dilution: is he protected against dilution from investor and employee stock grants over the next N years? I would guess not. His 1% could be 0.2% or less by the time an exit happens.<p>What is obvious is the emotional undercurrent to this very common anti-pattern. It sounds like he's not a real co-founder, he's "just a coder". They seem to be trying to sell him on a rotten deal because they think it's just such a privilege to work on their golden idea that they don't need to compensate properly. He's going to bust his ass to make the code work, for a salary half of his market rate, and in return he gets a tiny sliver of the company that gives him no real control, on a 4-year vesting cycle. I'm sorry, but these two guys are not (after 4 years, after he's done some real work) worth 79 times what he is just because they had the connections to raise money.<p>Prospective employees tend to view equity grants in a pre-employment context, when a 1% share seems extremely generous because the employee hasn't done anything yet. But that's what vesting's for! Vesting allows companies to compensate based on future contributions, with the knowledge that if the employee quits or is fired before the 4-year period is up, they won't have to pay for all 4 years of work.<p>At the least, if still thinks it's an "exciting" opportunity worth pursuing, he should recognize that he <i>probably</i> can't value the company better than the market, that we are in frothy times, and that the equity is worth more to an investor than to him (different risk profiles). So the value of 1% (post-money) of a $2.5 million company is $25,000 at most. That's $6,250 per year, far less than what he's giving up.<p>The first employee of a startup is not necessarily getting screwed. If that employee gets appropriate respect for his skill set, and reasonable compensation for the risks inherent in a startup, then it's a fair trade. A lot of people go into startups as early employees knowing the risks and upsides and that's fine.<p>What he should do if he actually wants to work on the startup: First, he needs to value his contribution to the company over the next 4 years appropriately and put a number on his "sweat equity". Let's say his market salary is $100,000 and he's being paid $50,000. Now add to his base salary: benefits (15% for health insurance, 401k matching), job-loss risk (25%, since typical severance offers are 1/4 tenure at current salary), career risk and opportunity cost (15%), and overage hours (30%, assuming a 50-55 hour work week). That's $185,000 per year. Take that, less the $50,000 he's making, and his sweat equity is $135,000 per year. Over  4 years, that's $540,000. The company's valuation is $2.5 million, "pre" to his contributions. He should be getting about 16% of the company, assuming he remains for 4 years. This number seems high, but if he's there after 4 years he will have been there almost as long as the founders, so it's about right.<p>First action: he needs to ask for 20% and settle for no less than 12%. If they say, "but you haven't done anything yet", he should point out that the equity grant is subject to vesting and that he won't get anything if he doesn't do any work.<p>Second action: he needs to demand the right to listen in on investor and client meetings. Otherwise, the other two founders will hold all the power in the organization because they, and they alone, hold that special knowledge of what investors want. If they think he's "just a coder", they'll show it by saying (in effect) that no, he's not "good enough" to be in the investor meetings.<p>The most likely outcome of his making these two demands is that they'll tell him to get lost. If that's the outcome, it's also the best outcome because it means the startup's a tarpit.