For example, I have a client today whose founders are guys having ultra-strong backgrounds in devising enterprise solutions, with major high-level contacts in the relevant market and reasonable prospects of parlaying all this into what eventually may become a $1B+ company. A "technical employee" could reasonably be thought of as "first employee," as opposed to "founder," in this type of case and could make a rational decision to take a whirl with equity instead of salary. It all depends on the nature of the opportunity and the credibility of the founders (I don't deny, though, that there can be a high risk of taking a sucker-bet in routine cases where equity-only offers of this type are made).

(Well, they still might make some money off of them before they get caught out, but that sort of fraud, inadvertent as it might be, is not something you want to be associated with.)

The "technical employee" is a necessary (but not sufficient) part of their potential success, and getting the technology right is a lot harder than non-techies realize.

The biggest problem here, especially today, is that there are so many hungry people on the streets looking for work that your negotiating position isn't strong. On the other hand, if these non-techie founders truly are savvy they'll know there's not exactly a surplus of really good people to choose from....

My bottom line is that when non-technical founders devalue technical employees they also tend to devalue all the technical things that are needed to make the venture successful, and that that's a very bad environment in which to work.

Indeed, and if you're a disciple of Clayton The Innovator's Dilemma Christensen the technology itself often isn't what's so innovative as the use to which you put it.

But it still has to work ^_^. At least in this case we can have serious confidence that the once and future CTO will make sure it does.

No enterprise solution is worth $1B+ on the strength of 'major high-level contacts'.

It's all about the actual work put in and a massive dose of luck.

Second, grellas didn't say this company was worth $1B. He said that based on the founders' track record there was a "reasonable prospect" of it. "Reasonable" here presumably means in the judgment of experienced observers. Like who? Maybe like grellas, who has been a startup lawyer for decades and consistently posts some of the most informed comments on this subject. The point he was making is nuanced, and the example was obviously chosen to illustrate that.

Maybe?

(btw, op, there is another post here: http://news.ycombinator.com/item?id=483605 asking a similar question with numerous good answers... and only one of them is mine!)

I generally think that you should get a grant for the same number of shares that the three founders do, but if everyone's on a vesting schedule, they'll still own more than you for the next four years from today. After that, you'll all be on the same economics.

Here's the idea: let's say the three of them founded the company 9 months ago and they all have 100 shares each. You should get 100 shares as well, but let's put everyone on a vesting schedule that says you get 2.08% of your shares vested for every month served. So the three founders should get credit for nine months of service and 18.75% of their shares should immediately vest (as of the day you join) while you're at 0% vested. At month 48 after the company was founded, the three founders are fully vested while you're 81.25% vested. At month 48 after you joined the company, you're 100% vested and are on the same economics as the three founders.

No salary is a big no go for me. This is something I could only do with close friends that I have known for years.

Think about it this way: If those 3 guys really believe somehow in their project, they should be able to find some money to give you as a minimal salary.

If they expect you to take a high risk (not getting any money) they should give you a high reward if everything goes well. To pay someone means that you take the risk that she does not produce any value, but you win the most if she does.

The real questions are:

a) can you afford to take this risk? Can you take the risk financially and qua opportunity cost?

b) do you think all three other founders have valuable skills?

c) are the other founders smart and willing to work hard?

d) do you think they have common sense?

e) do you get a say in the way the company is run, or are you expected to shut up and code?

f) do you trust the other founders not screw you over? Are you absolutely sure they're trustworthy?

g) do the founders get along great with each other and with you? Are they mentally stable?

If you can't answer these questions with a confident YES! you should probably pass on the opportunity. If you have no doubt that other founders are going to accomplish great things, and if you're willing to take a risk, don't worry about having 5% less equity than you'd like to have. A 15% share in a great company is a lot better than a 35% share in a flaming train wreck.

Oh, and get things in writing, just in case.

Absolutely, that's the primary reason. It also clears up unnecessary misunderstandings. (E.g. one party may assume preferred stock, while the other founders will assume common stock.)

Putting it down on paper forces a minimal level of clarity and detail, and gives all the parties concerned several chances to get it right, enumerate and specify details such as the above, etc.

As a cofounder, you should get a significant share of the business (around the same % as the others have).

What about if it's not a public company? That is, 2 or 3 people and an LLC?

In the UK, you can just decide how many shares the company has, and sell them for whatever amount per share you decide - that way you split the company between several founders. Of course, if you want more complicated stuff, like vesting, you'll probably want to speak to a solicitor.

I wouldn't even consider joining that kind of startup, I think 4 people is not manageable if everyone is working just for equity.

There's a lot of things you'll need to explain before being able to get a good response. i.e. If the product is from scratch and there are little resources, there's no reason you shouldn't get close to or even founders equity, but if they already have a product with traction it's a completely different story.

Don't waste your time.

Worked well for me, as the "1 technical guy."

Edit: I'm not "questioning" your wisdom. Rather, I'm asking for clarification.

That's not to say I don't value what they do, just that it seems their work is mostly front-loaded. Once you're launched and the design is fairly stable, the designer needs to be willing to switch hats and pick up slack where they can.

All founders should switch hats! :)

If you are not a full-on partner, then require some salary.

More than you can get. (Unfortunately, biz folk respect folks who play games.)

It comes down to alternatives, yours and theirs.

You shouldn't join if you've got better alternatives. They shouldn't pay you (salary, equity) more than it would cost them to get "good enough" from someone else.

If they don't get you to sign on, what are their alternatives?

One other advice I got is to strive to stay with ~3-4% after all dilutions, which should be estimated as being diluted 1/3 for three times. so to stay with 3% i should start with 10.5% (->6.9% => 4.6% => 3%).

One other detail I didn't mention is that they want me to keep my day job (me salary paying job i currently have), until the first round (seed money). Currently the three of them also keep their day job, so we are all kind of equal on that aspect.

Regarding the founders abilities, they have design/biz dev/ceo experience.

Be sure to do your due diligence on their character.

If they had a product up and running or even with customers, then you have to give some consideration.

The "idea" itself is worthless. Its all about the execution - and as a no-salary, techie - its going to be your job to help that happen.

Let's say they give you 10% equity.

And let's be realistic. Even if the company succeeds, can the company become a 20 million dollar company in 5 years? 10 million? 5 million? 2 million? Or is it more likely to just be a $500K/yr business?

So if you pass the hurdle of failure, which has an insane rate on the web...how much would you really be making realistically?

Just remember to always include opportunity costs in your calculations. Is the risk justified, when you can make $450-500K in those 5 years, just being a regular coder.

In your calculations just remember though that salary and equity are taxed quite differently.

b) do you think there will be minimal money in the company at some point soon?

c) is this a product you really want to see built? In other words: if they were two of your buddies, you were having a drink late one night, would you say to them when the idea came up: "wow this is a great idea, id like to help be a part of it".