As someone who has started and worked as an early employee at several startups in the bay area and has spent a large amount of time interviewing and evaluating offers:
Con 1: Compensation
Equity is not worth it. Early employees bare the same risk as founders, work just as hard, and have an order of magnitude (or two) less upside. The chances are that even a series A funded startup will go bankrupt and the equity is useless. Seed funded startups are even worse in the sense that the risk is way higher for just slightly more equity.
Base compensation is too low. Salaries at usually barely livable in the bay area and leave no room for savings. This has two major problems:
- First, its hard to support mortgages or families. This creates a biased hiring process that favors those already well-off or very young (and likely inexperienced).
- Secondly if the startup fails (the likely scenario), the chances are the employee's savings are non-existent. They'd more likely opt for a cushier job instead of building on their experience at another startup.
SOLUTIONS:
1) Early employees need a higher salary. No living wages. No forcing people on a ramen diet. I'm talking $130-$180k for engineers at the seed stage (in Silicon Valley), PLUS healthcare. Other roles should be proportionately similar based on market rates. This means either seed rounds need to be larger, or bridge rounds become much more common. I think the latter makes more sense; if the startup has some traction, but not enough to go for a series A, then the founders can raise a little more. If the startup doesn't have traction and burned through its seed, it should fizzle out sooner and liberate the team to do other things.
2) WAY more equity for early employees.
* 25% - founding team (first 5-10 employees)
* 25% - all future employees
* 50% - founders
* Investors eat from everyone's shares proportionately.
A win for the founders should be a win for the early team. There should be no scenario where the early team doesn't benefit from an exit but the founders do. The founders succeeded because of the team.
3) No bullshit vesting schedules. At worst, stick with the standard 4 years, 25% a year, 1 year cliff. No 10-10-20-30-30 5-year split nonsense that only favors employers and force people to stick around longer than is healthy.
And add refreshers that vest. 10-20% of their annual comp. Salary bumps can also work as a substitute. Incremental rewards are important.
4) Not 100% on this, but common stock for everyone. No class A shares -- win votes by convincing the team you're right and not being a douchebag.