Do the math on your stock options

I don't view it as "shut up and take it", but rather "here's what we're offering; would you like to take it?"

The most common form of dilution protection is the right to invest more cash in future rounds pro-rata. (So you can pay to stop being diluted.) That you might be able to get if you hold shares, but you're going to need to pay cash at each round to avoid dilution. You won't realistically be able to get it as an option holder in the employee option pool, and as a non-accredited person (by the meaning of CFR Title 17.II§230.501), I'm not sure of the legality of investing cash to protect existing holdings from dilution. (I'm not saying it's not legal; I'm just not sure as I meet at least one of those tests.)

As both an employee of startups (in the past) and an angel investor (dabbler/dilettante), I can see both sides, but when I contemplate writing a check to "2 founders, an idea, and a powerpoint deck", you can imagine that many provisions of convertible/venture debt exist to make that make a tiny bit more sense and provide some limited downside protection for the "indefinitely horizontal" company trajectory.

Once I invest, I have very limited input into how the CEO runs the company, but I'd advise a CEO to pass on a mid or late stage employee who is too much of a troublemaker about their options terms. Realistically, the company should not be negotiating and drafting custom options terms per employee and an employee who demands such is probably a better fit for someplace else. Quite literally, the terms of the company option plan are (often) set and modifying them is nowhere near the same as giving a signing bonus, flexible hours, a few extra vacation days, work from home on Wednesdays, or a different salary/bonus amount.

And you are not the kind of person who would ever want to leave a corporate job to work at a very early stage startup. And that's fine.

But a 40% pay cut is within the the norms for that sort of transition. It can be a good move for some people.

Just because you don't have cash doesn't mean you don't have an asset that has value. If I give you a house, you don't have cash, but you still have to pay taxes on the gift.

I do agree that there is some degree of ridiculosity and there should probably be some tax reform here, but that is the reasoning behind the current rules.

Most founders go with no pay for quite some time. You can still be a co-founder and receive pay but being a co-founder conveys far more risk and responsibility than being one of the first x employees in the company. Even if you happen to be the person "building pretty much everything", it still does not justify being a co-founder.

If you wish to be a co-founder, you typically have to be willing to take more than 40% pay cut for much longer. You must be willing to defer your paycheck so that your other employees (who are usually on a paycut too) can get paid if funds get tight - this is even expected of most CO employees in the company but the first ones to go are always the founder's. You are usually involved in most fundraising activity in addition to your other duties, whatever they may be* and customer support early on.

The list is quite long, I was once a highly entitled "engineer" until I built a few of my own companies. The dynamics are so much more complicated and tailored to each individual situation that it's disingenuous to lay out blanket statements the way most people in these comment threads have been doing.

Being a founder is brutal.

I'm not saying key engineers aren't entitled to good or fair treatment or that it is impossible to become a co-founder if you're #3 or #4 or #5, but I do not believe you're entitled to founder status just because you're an early hire. Sometimes it can happen that way if you choose to take on those responsibilities and risk and negotiate that dynamic with the other founders - setting up achievement milestones and what-not.

Similarly: Just because you're a founder doesn't mean you're actually entitled to the role of C*O (though you may hold that position early on as it needs to be "filled" it can quickly out-grow you). Some can become those roles and some simply aren't capable of scaling with the needs of the company.

thanks for sharing! :)