Ask YC: Should I work for a startup?

Here's the problem: equity. The offer is just too low: a fraction of a percent. For me to make decent money from this startup (by decent I don't even mean enough to retire, certainly not in the Valley, which would require a few millions) it would have to have an exit of hundreds of millions if not over a billion dollars. These days, very few companies achieve this. I doubt this startup will.

It seems like although the attitudes towards funding and operating startups have changed significantly since the .com bust, the attitude towards equity distribution to employees is still rooted in the delusional .com days. It's just not worth it for a good hacker to join someone else's startup for such little ownership stake. As much as I would like to join them, it just makes much more sense for me to start my own company so I'll have a better chance at cashing out with a reasonable amount of money.

This brings me to the startup risk paradox: working at a startup is riskier for employees than for founders. A founder will do well for himself even if the startup has a modest exit. An employee will only do well at the much less likely event of a fantastic (hunderds of millions) exit. If you're a talented hacker, it's less risky to found a startup than to join one. Sure, you may fail, but if that happens you can always get a job and then try again.

Your thoughts are appreciated.

Do you know how the equity is currently divided? Is it 40-40 for the two founders (assuming only 2) and 20% left over? Have they taken any equity funding yet? Is it just starting out, or would you be employee number 13?

Knowing what they have available to offer, where they are along the start-exit line, and their current equity position will give you a good idea of how to negotiate.

Another angle, will you be taking a salary? If you're making a modest salary then it is perfectly acceptable to be offered only a small fraction of equity. You may very well be making more than the founders are.

If you want more equity in the company, offer to forgo a salary or take only what the founders are taking.

working at a startup is riskier for employees than for founders.

I disagree. The founders take the most risk, and get the most reward because of this. Founders typically make millions or $0. Employees don't typically make millions, but it's against the law for them to make 0. They earn a regular salary, which is less than the millions the founders might make, but they earn it consistently. There's a trade off.

Equity is rarely going to pay off for you unless you are fortunate enough to hit the Microsoft or Google jackpot. You might be able to buy a nice car, but don't expect a place in the Bahamas.

Work there if you really love the people or the idea. Enjoy your monthly paycheck. But if you are in the game for the big payoff, you'll have to strike out on your own.

Remember: early employees never get rich, except for the really exceptional cases in which even the dock workers get a huge windfall.

I should have said that founders are exposed to greater risk in the very early days of the company, but afterwards the chance of meaningful financial payoff for employees becomes much smaller. Most startups won't be the next Google or Ebay, and I think they should take that into consideration when incenting their employees with stock options.