you also completely misunderstand my point about comp. the point is genuine risk takers are willing to only make money when they create something of real value (by taking equity), instead of end of year mark to market profits and the other nonsense that goes on at hedge funds, investment banks etc.

In theory this is great, but the problem with this is that typically, the smartest/most capable/most talented individuals go where the money is, within whatever industry they’re in. I personally think human capital should be valued at whatever it’s worth -> employees should be paid at least at market salaries, AS WELL as with favorable options packages.

I’ve met a lot of entrepreneurs, but even the smartest are usually barely on par, intellectually/analytically/etc, with average/mediocre hedge fund analysts (just from my own personal experience). There is a reason for this; make startups more compelling for smart people to join; value human capital at its intrinsic worth, and pay accordingly; after all, that’s what the VC money is for half the time, right?

A reasonable solution is to allow new post-series A employees to get more equity if they take a lower salary. I like to lay out a range of option/salary tradeoffs and let them pick the point they’re most comfortable.

BTW I don’t hold it against people if they pick salary over options. The important thing is that they be comfortable with what they choose.

4) founder hubris

often, having taken it to the point that they are now able to secure series A funding, founders tend to overvalue their importance / skills for continued success. the logic now becomes “the best of the rest (for the least equity)”. instead, if founders (who have the majority say in this matter) have a longer view of the “start-up” period, and are more generous in granting equity to post series A hires, they might attract better talent and more quickly create value. also another overlooked fact is that pre Series A, a startup may just have lower access to talent because of lower visibility. therefore often times, pre Series A hires/co-founders are restricted to your friends, loose network..this expands greatly when you raise Series A, gain new networks, greater visibility etc.

I look at our current economy and see instability everywhere, which has made me even MORE risk tolerant. Being in an entrepreneurial company that’s trying to do something new and/or differently seems safer than almost anything else, but few people seem to share that perspective.

Most people just aren’t cut out for the inherent instability of an early-stage start-up, and the lousy economy has many people clinging that much more tightly to what they know.

You said:
“I’d rather see people get bigger option grants post Series A and sub-market (or better yet subsistence) cash salaries… This is pretty much the opposite of Wall Street’s compensation schemes.”

It’s not just Wall St that’s in opposition to that, it’s most people looking for jobs. Jobs are scarce to begin with right now, and there aren’t a lot of companies getting funded. A gig at a post-A start-up that provides a stable salary + any potential upside at all is definitely more appealing to lots of people, especially those w. family obligations, etc.

People who join pre-A are buying into a company’s vision and sharing risk with the entrepreneur. The assumption is that they’ll work hard to get the company to a stage where it’s fundable and/or profitable. Taking on that risk and responsibility is a huge commitment, one that’s hard to graph.

That said, people shouldn’t overengineer their entry-points to the detriment of a good idea. What is in short supply is amazing teams executing against amazing market opportunities. If you are building that as a founder, awesome.

But, if you have a friend who just closed a Series A and you think it’s an amazing opportunity, get on board and help him/her out! That is much better than working an idea you are moderately excited about but is your own, simply for the equity math.

Alex – I’d agree that joining after the B & C is a bad time if the company isn’t “ramping” yet. What I was trying to argue is that sometimes the smaller equity grant is made up for post B & C by this ramp. E.g. joining Google in 2003, Facebook in 2006, Twitter in 2008 – in all cases you’d get a sliver of equity, but at least they are highly likely a winner.

@chris thanks for this. you’ve posted some great stuff lately, please keep it up!

Consider: how many people would agree that LV is the “worst” handbag in the world because its price/quality ratio goes out of proportion with other commodity peers?

Joinging after an A round provides some sense of security and this little psychological assurance can be worth a lot to many even if the more quantitative analysis behind could go slightly counter intuitive.