40 basis points is an insanely large grant for 10-20 hours of work. They wanted 160 bps: 40 per person. At any normal company, you would have to work 4 years to get that amount. If you work at a company as engineer number 1-5, prior to any funding, you might expect 50-300 points, over 4 years, after working for a small salary, and under highly uncertain conditions.
These expectations are ridiculously misaligned and totally unreasonable.
Why exactly would you take 0.5-3% to work for a startup with no money under highly uncertain conditions, when you can take 33-100% of equity to found a startup with no money under highly uncertain conditions?
> Why exactly would you take 0.5-3% to work for a startup with no money under highly uncertain conditions
Because you believe in the team, the idea and the opportunity.
> when you can take 33-100% of equity to found a startup with no money under highly uncertain conditions
Those who can, will.
But this guy wants to do neither. He wants 0.4% for 20 hours, and then he wants to walk away and let someone else build up the value of the company. Assuming his total stake is ~12%, that's equivalent to a demand for a 4 month vesting schedule with no cliff, for what? A weekend?
He doesn't want to found a startup -- he wants to spend one weekend building a shitty prototype. He's not talking about being there when the thing goes live, fixing the broken deployment, troubleshooting the errors -- you know, the actual work which keeps the customers satisfied. He's talking about writing a model one time, and letting someone else take all the risk.
Well, if you can find someone who believes in your idea that nobody will pay for, the opportunity that you can't prove exists, and the team where some folks are taking 90%+ and others are getting 0.5-3%...more power to you. This is why startups find hiring, hard, though. These folks are a.) hard to find and b.) prone to leaving when they realize they're slaving away for virtually nothing.
And IMHO, pretty much everything in this story is set up for failure. This is not how startups get founded. Actual startups get founded by a team working for equal or nearly equal shares, who do all of the work necessary to build something that people want, and then either take funding or use revenues to hire people once they can pay market-rate salaries. Startup Weekend is for meeting people. 0.4% equity deals with no salary are for wasting time on a lot of drama.
> and the team where some folks are taking 90%+ and others are getting 0.5-3%
I'm not sure how you keep missing this key part of the argument: 0.4% over 20 hours. I've italicized the part which I find ridiculous, so that you can better understand where I am placing my emphasis. Him wanting an equal share for an equal amount of work -- no problem. Him wanting to get a full, post-funding engineer's grant for 20 hours: wild overestimation of his own contribution.
I'm missing that point because of this part of your original comment:
> At any normal company, you would have to work 4 years to get that amount. If you work at a company as engineer number 1-5, prior to any funding, you might expect 50-300 points, over 4 years, after working for a small salary, and under highly uncertain conditions.
It's not normal to work 4 years to get 0.5-3% equity, prior to any funding, under highly uncertain conditions. If the company is funded, growing quickly, and paying you market-rate salaries, sure, that might be fair. But if it's just a bunch of guys with an idea, you're pretty crazy to take that deal, and even crazier to keep working on it for 4 years.
It's also not normal to take 0.4% for 20 hours of work, but that's largely because it's pretty crazy to actually expect to start a startup at Startup Weekend. Go use networking events to meet people, and then if you like & trust the people, make a commitment to working with them for a longer period of time for normal founder equity stakes.
> It's not normal to work 4 years to get 0.5-3% equity, prior to any funding, under highly uncertain conditions.
What is that based off of? I've seen that plenty of times to know that it's quite common. I've never seen employees #1-5 being treated like a cofounder, so from my experience, what you're describing is way off base.
> But if it's just a bunch of guys with an idea, you're pretty crazy to take that deal, and even crazier to keep working on it for 4 years.
A bunch of guys who are paying you (admittedly below market). And yeah, if you keep the same salary after 4 years, after multiple rounds raised, after various milestones met, yes you're woefully underpaid.
I know a number of guys (roughly a half dozen startups) that have taken the "Let's get college students to work for us for cheap, or recent grads who are really excited about breaking into the startup scene." Their startups have all failed, without exception. The best outcome was a talent acquisition that netted the founders slightly less than they would've made working for Google over that time period (they were both ex-Googlers).
I also know 2 guys who have exited for ~$80-110M after taking $5-7M in funding, plus the founder of a unicorn who once asked me if I was interested in being employee #2. They all followed the same pattern: the founders built the initial product, they found customers willing to use it, they got funding, and then they hired people. (For completeness, I know an additional half dozen or so people that have followed the same pattern without success, usually getting absorbed back into a big company or other startup that's already gotten funding.)
A dozen data points isn't a statistical survey, but I know which strategy I'd rather follow (and am following).
There's a big seedy underworld in the startup scene that's filled with people working on bad ideas, with minimal funding or just their own savings & credit card loans, who try to get anyone they can to work with them for really cheap rates and small equity promises. Usually these startups end in drama, as they go belly-up and people realize they've spent years being underpaid. If you'd like to be a part of this scene, more power to you, but I'd rather steer clear.
If you want the argument-from-authority perspective, here's Sam Altman:
I think we're talking past each other at this point. I've seen enough deals happen (I used to work in VC) to know that nobody pays the first employees 40 basis points for weekend. Teams cofounding a company together is a different situation, and that's not what we're talking about here. I've consistently been making the point that expecting a 0.4% chunk of a company for building a first prototype is delusional. Your stories of people agreeing to start companies together and waiting until they find P/M fit before they hire up are all great and agreeable, but totally non-sequitur.
I think 0.4% was just for the weekend worth of work. Like just think of it as everybody vested that much over the weekend so the company still had 96.4% unvested equity with very unclear ownership. That makes it seem a little more reasonable although not any less confusing.
