Feelin’ Good about Equity

Posted in Work

Sometimes it takes some good hard numbers to demystify a feel-good situation.

I’d hope that most people who work in startups understand how the numbers work, particularly the expected value of equity grants. If not, this simple calculation helps add some perspective.

To be clear, I don’t think the author’s assessment of time vs. value is completely accurate; getting and completing (and collecting from) contract work requires a lot more work than he implies, and any arbitrary time constraint should be met with resistance, weekend or otherwise. I also subscribe to the notion that once in a while crunch time will happen even with the best project management, and that it’s an unfortunate but expected part of startup life.

Taking it to the other extreme doesn’t work either. Counting hours is standard for contract work, but variability and adaptability is a part of ownership. Ideally, malleability bends both ways: the employer should recognize hard work and provide flexible schedules as well as tolerate periodic lapses in performance.

Equity is meaningful, but precision is not one of its strengths. I don’t believe that its worth should be discounted completely to zero, but obviously most startups fall far short of the ideal equity math they do to convince candidates to join. Not relying on options and RSUs as a precision instrument in compensation may be the first step in rectifying this disconnect.

And if anything, it strikes more at the problem of founder-employee equity inequality, something that Sam Altman has talked about in the past. Equity-as-ownership makes sense, but the equation changes drastically depending on how much ownership is bestowed. Precise quantification is tricky as so much of the value depends on potential, but it’s easy to see orders of magnitudes of difference between the founder-engineer putting in weekends, and employee-engineer doing the same with maybe 1/100th the equity and maybe an additional $10,000 in salary.