If you want your employee to take a pay cut they'd best get rewarded as much as an investor who put in the same amount. Look at the numbers, if you want a dedicated tech genius on call, and loyal, in his market, $700k for four years is very reasonable.
The hypothetical founders want someone to pass up being an employee for $100k/y, and costing the company at least $50k more, to work as a contractor for $50k per year - something that saves the company $400k, more than $200k of which comes out of the employee's pocket. If you think anyone should keep their mouth shut so as to not jinx that deal you need to go back and read the article again. Taking that deal is horrible. Especially because when you show yourself to be dumb enough to take it the company will really start treating you like crap.
At that, how is the founder really worth $500k in your average startup? The idea? I find it a little ridiculous that people who have no clue how to implement their idea think they deserve so much for it. Why wouldn't the key employee be worth as much as that?
For the record, I'm currently turning down a $150k 2y offer. On the face of it it's not too bad ($75k/y) but it has an optional buyout of my stake after two years at that $150k price, so that's the best it could ever get even if the company got huge. And that's instead of a wage, so I'd be doing the work free until, hopefully, it got big. So I'd have been, after all that, making a regular wage for someone doing this sort of work at a regular company, someone who has benefits, decent hours, etc, but I'd have taken all the risk.
Anyways, long story short, I agree with the article. Years ago they'd have had me at "So we'll be valuing your shares at $150K!"
The hypothetical founders want someone to pass up being an employee for $100k/y, and costing the company at least $50k more, to work as a contractor for $50k per year - something that saves the company $400k, more than $200k of which comes out of the employee's pocket. If you think anyone should keep their mouth shut so as to not jinx that deal you need to go back and read the article again. Taking that deal is horrible. Especially because when you show yourself to be dumb enough to take it the company will really start treating you like crap.
At that, how is the founder really worth $500k in your average startup? The idea? I find it a little ridiculous that people who have no clue how to implement their idea think they deserve so much for it. Why wouldn't the key employee be worth as much as that?
For the record, I'm currently turning down a $150k 2y offer. On the face of it it's not too bad ($75k/y) but it has an optional buyout of my stake after two years at that $150k price, so that's the best it could ever get even if the company got huge. And that's instead of a wage, so I'd be doing the work free until, hopefully, it got big. So I'd have been, after all that, making a regular wage for someone doing this sort of work at a regular company, someone who has benefits, decent hours, etc, but I'd have taken all the risk.
Anyways, long story short, I agree with the article. Years ago they'd have had me at "So we'll be valuing your shares at $150K!"