This reminds me of the early-stage startup that offered me a $55k salary in a big city and zero equity to be engineer #3. They told me that if after a year I'd become an integral member of the team then we could discuss equity. Meanwhile they tried to sell me on the job by saying that if the company succeeded we'd never have to work again.
I really don't understand what these companies try to accomplish by essentially lying to you and trying to defraud you of your value. Do they really think you'd sitck around for long under these terms after you find out inevitably how badly you're getting fucked?
A lot of the startups that I see that try this are doing it because they really believe that they're bringing the value in this relationship - that they're going to be so successful, there's so much money here, they have SUCH a good concept, that the applicant should be grateful to get in on the ground floor.
Of course, 90%+ of the time they're totally wrong about everything about what they're bringing to the table, and in the other times, they'll often conveniently change things around to benefit them, like, "Well, you know, I know we said 4% of the company once we raised series A, but honestly, your contributions have not been what we expected, and so you really only are entitled to 1%"
To quote "The Spanish Prisoner":
Jimmy Dell: I think you'll find that if what you've done for them is as valuable as you say it is, if they are indebted to you morally but not legally, my experience is they will give you nothing, and they will begin to act cruelly toward you.
I got an offer last year from a company who offered me a 25% salary cut from my current salary and some negligible equity percentage, and then got all huffy when I tried to negotiate the salary. In their mind, the equity was worth so much money, they could pay me peanuts and I should still take the job. It was a huge turn-off. The guy basically told me to go off. "Why bother with startups, then?" he says. Completely missed the point of equity/salary.
Also, if the equity is worth so much money, why are they even offering it to you in the first place? You'd think they'd want to keep it all for themselves.
I had a conversation one time that went sorta like this (I don't remember the exact numbers):
Me: I'd rather be paid, say, $250k to do the work in a year and zero equity
Guy: But if the equity will be worth, say, $4 million in a year, why wouldn't you do the work for $25k?
Me: If the equity will be worth $4 million, why are you arguing over it - wouldn't it be better for you to pay me the $250k and pocket the remaining $3.75 million?
Guy: But the $4 million isn't guaranteed! That mightn't happen.
Me: My fucking point exactly!
And even after saying that himself, he STILL couldn't understand why I would turn down the equity...
I think you underestimate the number of programmers who are willing to work under such conditions for the "glory" they perceive the position to bring (and, of course, there is no shortage of people who actually think their lottery ticket is worth far more than it really is).
In an area where there is a high concentration of people who are young (naive) and (relatively) debt/responsibility free it's easy, almost trivial, for a founder to exploit them. I perused Angel List some time ago. The salary offerings were hilarious. It's very clear to me (mid-30s guy with a family and mortgage) that they are targeting a certain age and social group.
I didn't know about that site so I went and checked it out.
Holy crap. Most of the listings there are completely hilarious. They expect anyone to work in the bay area for those salaries? (and I'm a different demographic than you -- 20s guy, no mortgage, family w/ no kids.)
They try to sell it because they believe it themselves.
This is almost worse than them lying, insofar as incompetence can be more damaging than selfishness: you can negotiate with a selfish person to get something for giving them what they want. You can't get anything out of someone who can't deliver.
Of course it is. All things being equal, if you're still employed a year later your stock vests. In his situation he'd have to start negotiations about his equity. That's a huge difference.
I don't agree. If he's indispensable he'd have an easy time getting equity after a year. If he's underperforming he'll be let go in just under a year to avoid the cliff...
The biggest problem in his situation is there's not contract in place to keep the employer honest. There's nothing to prevent them denying they ever offered equity, nor to prevent them starting the clock on vesting at the time the option agreement is signed. "Here's a meager salary for now, and you'll have to trust us to do The Right Thing later."
The employee is the one getting the work done. And he's got to watch out for his bottom line like everyone else. If you're being promised equity without a written agreement, then take that into account- assume it's not even part of the equation and negotiate better pay or move on.
It's not strictly equal, and true, accelerated vesting is a factor.
Just attempting to make the point that one should not take too much comfort in any options package before he/she is over the cliff and unless he/she has seen the cap table.
