Ask YC: Should I work for a startup?

I thought/think much the same as you, which is why I'm founding my own startup after working for 3 years at 2 other ones. I had similar equity offers as you - 0.1% at one startup, none at the second (and an offer of 0.02% at a third that I turned down). I used to think that employees were insane for taking a straight salary instead of a shot at a big payout. After 5 months working full-time on my own startup with no salary, I'm not entirely sure. Obviously I think that on-balance the startup bargain is more appealing, else I'd go get a job, but I also think the scales are much more even than I'd initial thought.

If you do take a job at the startup, take it to learn, not to get rich. You won't get rich. 80-90% of startups fail outright and nobody gets anything, other than whatever venture money was paid out in salaries. If it does succeed, you won't get rich with an employee's option grant, unless the startup really hits it big (like, Google or Microsoft-sized). One of my coworkers worked at a startup that was bought for $42M - he ended up with $3000. I do know someone else that ended up with a multi-million-$ payout as employee #35, but she was a VP and the company in question was Stratus, which momentarily had a billion-$ market cap. She ended up losing much of it when Stratus stock crashed anyway.

If you do go the founder route, do it for meaning and not for money. It has to be something you'd want to do anyways, regardless of whether there's a huge payout attached. Because from 5 months in, that huge payout looks pretty remote. (I wish I'd paid more attention to webwright's advice on tractability, in another comment thread.)

On a side note, I always wondered why some startups are so stingy with equity. If you give out big-company equity awards, you get big-company effort. And if the people who are actually doing the work are putting in big-company effort levels, how do you expect to catch the big companies? The conclusion I reached is that the startup should have product-market fit before hiring people, so that success is just a matter of crossing Ts and dotting Is, but neither of the startups I've worked at were at that point. (And sure enough, one failed outright and the other is sorta walking-dead: profitable but not growing, with a pretty narrow customer base.)

There are times when an "employee" is really a founder, but the founders don't want to admit this. Even if there is a salary, the financial situation may be very unstable (ie., making payroll may be an issue). This is often the case for very early employees, and seems to happen most when non-technical founders are hiring their first progammer. In this case, I think the founders should really be either bringing on a technical person as a founder or paying a contractor. It's a sign of a pretty clueless bunch of managers, either way.

The other situation (which I am in right now) is when you have a fully functioning "startup". The business may not be cash flow positive, but it's been around for a while, has a stable funding base, a product, and probably some customers. In this case, a very small bit of equity is reasonable, because the employee is really working for a salary, plus a chance at a nice payout (maybe up to a mil, but no more than that).

My advice is that you evaluate the company - they need to be in category 2 for this offer to make sense.

By the way, I agree with you that the risk can be "greater" in some situations for the employee than for the founders. The founders have more control over the exit than the employees do, and they'll see trouble coming from much further out.