1% Equity for Founding Engineers Is BS

Original Article ↗ Hacker News Discussion ↗

Employee-Owned and Cooperative Models

  • Multiple commenters ask why there aren’t more fully employee‑owned tech companies.
  • Main constraint identified: financing. To be truly employee‑owned, employees must supply capital or accept low/no salaries until profitability; most can’t or won’t.
  • Partnerships / buy‑in models (like Big 4-style partner tracks) are cited, but seen as risky for new hires and hard to scale; employees often want upside without downside risk.
  • Practical issues:
    • How to price buy‑ins for new employees.
    • How to handle exits (buybacks, forced sale at retirement, caps on ownership).
    • Ongoing fights over dilution, dividends vs salary, and reinvestment vs payouts; several anecdotes of employee‑owned firms devolving into bitter governance disputes.
  • Co-ops and ESOPs exist (e.g., food brands, consultancies, tech co-ops), but are viewed as better fits for stable, profit-sharing businesses than for high-growth tech startups.

Crypto Tokens vs Traditional Equity

  • The article’s proposed solution—replacing equity/options with a company “utility token”—draws heavy skepticism.
  • Concerns:
    • Legal status (likely a security / ICO risk, SEC issues).
    • Zero enforceable rights vs stock (no voting, no protections, acquirers can ignore it).
    • Unlimited dilution potential; no clear safeguards for employees.
    • Practical questions about lost wallets, insider trading, and aligning token price with company value.
  • Recruiters report that simply mentioning “crypto” causes over half of candidates to decline; others note euphemistic job ads hiding crypto involvement.
  • Some acknowledge VC has its own distortions and welcome experimentation, but many see tokens as re-running known scams rather than genuine innovation.

Economics of 1% for Founding Engineers

  • Numerous comments argue 1% for a true “founding engineer” is a bad deal:
    • You’re effectively investing a large salary cut and concentration of risk into a single illiquid asset.
    • After dilution, preferences, and typical acquihire dynamics, that 1% can become negligible or worthless.
  • Stories: repeated experiences of startup equity going to zero; examples where employee options were wiped while founders/investors captured all value.
  • Some founders share their own splits: first engineers getting far less than founders, but founders also taking years of low/no salary, extreme hours, and non-technical burdens (fundraising, hiring, sales).

Risk, Fairness, and Market Dynamics

  • One camp: equity should track risk; founders started before any selection filter, many fail before they can even hire, so later “founding engineers” are already joining a de‑risked entity—hence ~1% is market-clearing.
  • Other camp: early engineers often do 80–90% of founder-level work without proportionate equity; if you’re doing that much, you should be a co‑founder, not a 1% employee.
  • Disagreement on “fairness” vs “market outcome”: some say if 1% persists, it must be acceptable to enough people; others argue many candidates misunderstand options, probabilities, and dilution.

Career and Negotiation Perspectives

  • Several advise treating startup equity as a near-zero-value lottery ticket and optimizing for cash, learning, and network.
  • For high-paid big-tech engineers, staying put and investing surplus (even in index funds) often has higher expected value than 1% at a random startup.
  • Others highlight non-monetary motives: escaping big-company “existential dread,” wanting more impact, or enjoying early-stage chaos; for those people, lower pay and small equity can still be rational.
  • Repeated advice: don’t accept “founding engineer” titles plus sub-market pay; either negotiate hard (2–5%+ pre-funding, or strong re‑ups) or start your own company.