Comments on: Are founders really 1000x more valuable than employees?

By: Charles

Charles — Sat, 12 Mar 2011 18:14:54 +0000

A founder can also be defined as anyone who joins a company and gets equity in the company but no salary.

By: Halloo

Halloo — Fri, 25 Feb 2011 17:55:04 +0000

I’m not sure I understand the argument. If employee #1 is a superstar with a track record, they can, and often do, receive more stock options eventually than say, a “founder.”

The term “founder” to me, is just another title for people to hide behind or find refuge in If you kick @ss, you don’t care what you’re called, and you’re going to ask what you’re worth, regardless of when you came in.

There are also a lot of “Founders,” whose only contribution is that they were there before some others, but played little role in getting the company to success.

By: Siddharth

Siddharth — Fri, 25 Feb 2011 09:02:05 +0000

How do you justify a scenario where a founder starts with nothing but an idea when employee one is hired. I understand that ideas are invaluable but without implementation its just another idea. Is the founder worth that much more even then? Curious?

By: Pavan

Pavan — Thu, 24 Feb 2011 03:26:44 +0000

This article kind of makes it a little bit more attractive to join a start up rather than start one, but at the same time, equity is only worth what someone is willing to pay for it. So yes the employee is getting a better deal than the founder did when the founder came up with the idea, but at the same time the founder is trading equity in the Company for the talent of the employee.

As a start up founder, I truly believe talent is more important than anything. It’s more important than money and equity. Because talent is ultimately what’s behind what makes equity worth money.

I think i’m just rambling on, but recently my Partner and I decided to give our Team Lead equity and base pay (even though we’re bootstrapped), and I think it’s the best decision we’ve made.

At a start up, founders need to foster an environment where talented employees can blossom and be diligent.

By: Fred

Fred — Wed, 23 Feb 2011 23:02:53 +0000

I agree, percentages are important.

By: Non Disclosable

Non Disclosable — Wed, 23 Feb 2011 21:18:29 +0000

Nice post Nivi. I like the explanation.
I don’t know much about the ecosystem in the valley, but here in India founders are Infinite times valuable than employ.
After working with few start-ups here, I realized that the employ stock option is not exist in reality. Stock options are offered to employ verbally (off the record) and generally get denied later.

By: Tristan Kromer

Tristan Kromer — Mon, 21 Feb 2011 18:32:41 +0000

While I’m happy to see VH writing about equity issues again, this post seems a bit…well…not up to pre-Angel List post standard.

Discussing the fairness of equity splits in startup without once using the word ‘risk’ in the article seems like more than an oversight.

Founders take on more risk, so they get more reward.

It’s not the only reason founders get more equity, but it’s certainly relevant to the discussion. There’s obviously a host of other issues you could discuss, but that seems like the minimum.

If you’re going to bring up the issue, I think you should have a thorough discussion.

By: Sean

Sean — Mon, 21 Feb 2011 09:02:37 +0000

Nick, I agree with you here. Being a 2x founder and 2x employee, in my experience I have seen that founder’s are generally too greedy in dividing up the pie to new employees. This is, in a large part, why they frustratingly can’t find “founder quality employees” to take the deal. 1% for employee number one (vested after four years) seems like a pretty shit deal to me. As a creative entrepreneur, to me that feels like enslaving your life for four years for peanuts.

By: Antone Johnson

Antone Johnson — Mon, 21 Feb 2011 02:50:40 +0000

I’m as committed to equity (in the “fairness” sense of the word) as anyone as a matter of principle. That said, there is always a large amount of luck and timing involved in any gains on equity. In working with and for many tech startups over the past 15 years, I’ve witnessed many examples of ordinary folks being “hit by the lucky bus” and realizing large financial gains (e.g., the proverbial “millionaire secretaries” from the ’90s dot-com boom), as well as many others valiantly working their butts off for years without much in the way of equity value.

The key point I like to emphasize is that if the company does great, everyone will do just fine in an exit, provide they are vested. (Ask any early Google employee.) It is true that senior executives and founders get orders of magnitude more equity than rank-and-file employees. That’s also the case for cash compensation in the world of larger, more mature companies; regardless of individual views on the subject, this kind of differential wasn’t invented by the tech startup community.

By: Kate

Kate — Sun, 20 Feb 2011 18:55:52 +0000

I think this is an excellent post, particularly this comment, “A company at inception is worth nothing, because 100% of the value comes from execution.”

I’ve started several companies of varying size and quite frankly, everyones a founder until the company demonstrates tangible value to a third party. Jostling for position when the project is worth $0 does nothing more than tell you that you’re starting this company for the wrong reasons and your team is going to experience issues down the road.

Founders can also be 1000x less valuable than employees, particularly when the company reaches a certain level of growth and requires a battle tested CEO for example. I’ve seen founders refuse to get out of the driving seat due to ego, much to the detriment of the business and its goals.