> The worst possible position to be in is early hire in a start-up. You're going to see all of the downsides but only 1% of the upside of being a founder.
Let's expand on this, because that's me and I'm quite happy (but also willing to be convinced otherwise :D).
Financially, you're balancing lower salary with a potential for a large upside later. That upside can be great if you believe in the company and/or the value of the stock options offsets the lower salary, which it probably has the last two times I've done it, and definitely didn't the first 3. That being said, the first three gave me access to the last 2, and allowed me to see why the last 2 would work in a way that the first 3 didn't. Edit: also, comparing to the risk an entrepreneur takes, the salary cut tends to be much higher for an entrepreneur than an early hire (often the entrepreneur takes little to no salary for a long time).
In some ways you miss out on working with specific talent. You work with fewer people, so by definition you have access to fewer viewpoints. That's a very real opportunity loss, for sure. On the other hand, you get to work on a wider variety of things, and working at an early company tends to give you a better work-life balance which can allow you to learn more aggressively outside of work (and allow me to be a happier person in general). You also get far more control over the company's direction, if you care about stuff like that.
In terms of "might as well be a founder" - my CEO puts in way more work, way more hours than I do, is able to attract better talent than I can, is able to attract money in a way I couldn't, is able to administer the business better than I can etc. If I didn't think that was true, I wouldn't be where I am (this is part of the skillset that I can pick up at an early stage company that I couldn't at a later stage company). If I had those skills, yes it would obviously be better for me to found, but I don't so I don't think the way you've laid out the risk is entirely fair.
There are many more trade offs, but it's difficult for me to see why being an early stage employee is worse than a late stage. In either cases a lot is left to the negotiator and in both cases you can get a great deal, depending on what you are looking for.
Again, where do you get the "same risk" from? Edit: and I know we are both comparing anecdotal experiences, not asking for a repeat of that, I'm asking specifically for yours (or an expansion on your point of view).
> It's simple math: the equity a founder gets is paid for with less cash than your salary downside as an early hire.
I'm not sure why that matters. To me the only thing that matters is my salary downside vs. interest I could be making on a larger salary else where. I might be misunderstanding what you mean though.
The risk that the company folds hits the early employees just as hard as it hits the founders.
Founders don't typically provide a whole lot of capital.
Three guys meet in a room somewhere, hash out an idea, assign themselves CEO, CFO and COO, plunk $1000 on the table each, call each other 'founder', then get some funding and then hire you to implement their vision.
Their risk is just about the same as yours, only you get to share - if you're lucky - maybe in 1% or so of the success (assuming you don't get screwed somewhere along the line) and in 100% of the failure.
And if you're in for a profit share the odds are even worse.
If you're good enough to be engineer #1 you're good enough to be a co-founder.
On the other hand, as engineer #1, I didn't personally guarantee any debits of the founder, nor was I the one the IRS was after for years for not paying payroll tax when money was tight.
That sounds like a very bad company to work for. Debts of founders are not guaranteed by the employees for a good reason (even more risk without upside), founders that go into debt in order to finance their start-up and put up personal guarantees are obviously in a different class than founders that externalize all or most of the risk. If the IRS goes after founders for not paying payroll taxes when money is tight then they more than likely have a reasonable cause to do so. I've seen one such case up close and I didn't fault the local tax arm one bit when they decided to go after the founders. After all, if you allow founders enough leeway to pass the risk of their business on to society then they will take even more risk.
Better to fold than to not pay payroll tax, or, alternatively, talk to the tax man and see if you can work out some kind of a deal. Simply not paying is illegal and will get you in seriously hot water.
As an employee you are insulated from that but that's simply bad business and bad management and nobody forces anybody to do such things.
Let's expand on this, because that's me and I'm quite happy (but also willing to be convinced otherwise :D).
Financially, you're balancing lower salary with a potential for a large upside later. That upside can be great if you believe in the company and/or the value of the stock options offsets the lower salary, which it probably has the last two times I've done it, and definitely didn't the first 3. That being said, the first three gave me access to the last 2, and allowed me to see why the last 2 would work in a way that the first 3 didn't. Edit: also, comparing to the risk an entrepreneur takes, the salary cut tends to be much higher for an entrepreneur than an early hire (often the entrepreneur takes little to no salary for a long time).
In some ways you miss out on working with specific talent. You work with fewer people, so by definition you have access to fewer viewpoints. That's a very real opportunity loss, for sure. On the other hand, you get to work on a wider variety of things, and working at an early company tends to give you a better work-life balance which can allow you to learn more aggressively outside of work (and allow me to be a happier person in general). You also get far more control over the company's direction, if you care about stuff like that.
In terms of "might as well be a founder" - my CEO puts in way more work, way more hours than I do, is able to attract better talent than I can, is able to attract money in a way I couldn't, is able to administer the business better than I can etc. If I didn't think that was true, I wouldn't be where I am (this is part of the skillset that I can pick up at an early stage company that I couldn't at a later stage company). If I had those skills, yes it would obviously be better for me to found, but I don't so I don't think the way you've laid out the risk is entirely fair.
There are many more trade offs, but it's difficult for me to see why being an early stage employee is worse than a late stage. In either cases a lot is left to the negotiator and in both cases you can get a great deal, depending on what you are looking for.