I've been doing a lot of thinking lately about the pros and cons of salary, hourly, commission, and equity-based jobs. Those jobs are, in order from worst to best, how I view compensation. With salaried jobs, you only ever make a certain amount per year, no matter how much value you bring, nor how many hours you work. With hourly, you make more if you work more (overtime pays well), so at least you are compensated for time. Commission pays based on your performance e.g. how well you sell or how happy you make clients, so that scales with both time and skill. Equity pays based on performance as well (though this stays illiquid for a long time), and has a tiny chance for some huge upside if you own a decent chunk of equity and a liquidity event happens.
When a skilled software engineer is considering working somewhere, why would they ever pick an early startup? While the founders, who in most cases will be writing very little code and will spend most of their time pitching or pontificating, have massive stakes of equity without actually doing much (anywhere from 25-50%+), early engineers (the ones who actually produce) are given low salaries relative to what they could make at a FAANG and tiny tiny stakes of equity (usually sub 1%, if that).
Given that startups mostly fail, why on earth would anyone be an early employee? Startups only begin to have reasonably sized expected values if your equity stake is very high, given dilution and odds of success. A 1% stake is essentially worthless, statistically. And unlike a VC, which can spread its money around dozens or even hundreds of startups in the hopes that one or two of them pop over $1 billion, a human being can only work at one startup at once. They do not get to diversify and make the math work out in their favor. They might get 10 shots, if they work at 10 different startups and stay for between 2-4 years to vest some of their 1% and work until they're ~50.
Why would any engineers, who have found a startup that they believe in so much that they are considering joining, not just copy and out-execute the idea and start their own, giving themselves the equity they actually deserve? Seems like the only two real options are 1) work for FAANG or similar, or 2) start your own company. This middle ground of joining a startup just seems inferior in all ways.
Do I just have an overly negative view of founders as leeches? It really seems like a lord and serf scenario. Is one founder really worth more than 25 to 50 engineers? I kind of doubt it.
(And I understand that founders will often pay themselves a lower salary if at all, but does that really justify valuing themselves at 25-50x what they value another employee at?)
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