Earlier quoted context omitted.
I don't quite understand. On the one hand you're saying that early employees should "demand market comp" and on the other you're saying that equity basically doesn't matter (and if you feel this way, it doesn't really make any sense to be joining a startup anyway). Are you conflating "compensation" with "salary"? "Market comp" for a good engineer with several years of experience in the Bay Area is something like 250k…
> Early-stage companies should offer sufficient equity such that their employees should in expectation earn at least the same as they would at a public company. That's the joke! Nobody comes remotely close to offering enough equity that their total comp is equivalent! Imagine a company that just raised a $1M seed round on convertibles at a $6M valuation cap. Now say they offer an "extremely generous" 2% equity packag…
There's one nuance that I've been thinking about lately that I haven't seen anyone ever point out before, which is that high volatility will make options worth more than they are on paper.
Here's a thought experiment: imagine that there are two employers on the market. One will always pay 200k/yr guaranteed and you can choose to work for them at any time for this wage. The other pays 100k/yr plus one Coconut per year, and Coconuts are currently worth 100k each. So far these are equivalent monetarily. But now let's add the stipulation that after one year, the price of coconuts has a 50% chance of going to 0 and a 50% chance of going to 200k each. Which would you choose?
The expected value of each of these job offers is still equivalent (after 4 years of working at each, you'll have 800k in expectation). But you should definitely take the second one. Why? Because after one year, if coconuts drop to 0, you can just quit and join the first company. Then you have a 50% chance of 100 + 200 + 200 + 200 (coconuts to 0) and a 50% chance of 300 + 300 + 300 + 300 (coconuts to 200) which comes out to 950k, which is better than sticking with either company alone.
This thought experiment fascinates me because it clearly shows the extra value that up-front stock grants have. The point is that you have some protection from downsides in the form of switching jobs, but no similar cap on the upsides, and the higher the volatility of the stock the more value this provides.
I'm not sure what the numbers look like when you view them through this lens, but it does mean that an equity grant of 2% of a 6M company should trade off for more than 30k/yr.