It's all about trust. Can the employer trust the employee to work honestly and be dedicated to the company without having another job or occasional project on the side. When startup is small, every minute of focus counts. Easiest way to make this work is to give developers enough equity, so they are motivated for startup to succeed more or equally as getting the paycheck. Eric's POV stands, but he's a co-founder, he…
Your point is taken, but it seems to me that if my employer can't trust me to work remotely, then they shouldn't hire me at all. How can you employ (or work for) someone you can't trust?
He was covering up his lack of productivity for some months with "personal problems" on both sides, while not being focused in either company. If you have many employees, such behavior can go unnoticed for a long time.
OTOH, after this event, I tried giving significant equity to some other guys on the team, and their productivity went up. I guess some of them had side projects as well before that.
Maybe one can work around this by requiring full-time Skype camera access during work hours, or similar, but I hate to be "the police". I feel much better giving away some equity in exchange for loyalty.