I've learned that founders have a much greater risk/reward ratio than employees. The ratio is really not even close. The assumption that founders risk it "all" is a fallacy. The assumption that employees have less risk is also inaccurate. It depends on the situation, sure -- but I know plenty of startups founded by people who can crash and burn and not have their livelihood affected.
As for "risk compensated with appropriate equity", I'd have to say that most early-stage employees get screwed. The only case where early-stage pans out with commensurate reward at the employee level is when a company goes public. Given that most successful exits nowadays are through acquisition, most early employees are simply hosed.
> Given that most successful exits nowadays are through acquisition
Yes. We should also note that IPOs are much more rare than they once were, the entire world economy is flat or failing, and the flurry of $1M/employee acqu-hires from last year by Apple, Google and Facebook was an aberration and not an economic principle that is likely to be repeated, and even then didn't benefit the actual engineers.
The reward upside on yet-another-startup doing the same thing is quite poor.
On the other hand, creating your own business and avoiding VC's entirely is still a good bet compared to these other alternatives. For those who want risk, it's a great way to go. For risk avoiders, there's tons of well compensated employment working for mature and reasonable companies.
What is the value proposition of these startups that have low compensation, completely retarded so-called products, and almost no chance whatsoever of going public? None.
If the risk isn't being compensated, I'm with you on that point. That's Bullshit! But the... "founders have a much greater risk/reward ratio than employees", that is not a fallacy in most cases.
In my own case, I've been working for 18 months with no salary and I don't consider myself unique. Most founders go down the same long long road before they bring on their first employee. I've learned that most employees (if they haven't gone through the process of founding a company) dismiss the amount of risk founders take on to get a company to the point of even being able to make their first hire.
The whole question seems like we should create a standard model for the risk reward and set equity appropriately.
> "dismiss the amount of risk founders take on to get a company to the point of even being able to make their first hire."
I don't think this is really the issue. The issue is that the economics of startups don't really work if you expect below-market salaries to be a thing.
Founders shoulder tremendous risk and (the smart ones) live on starvation-level salaries for months, if not years, before they bring on their first employee. Sure - and they deserve to be compensated appropriately via equity.
Employees, having taken on only minimal risk, don't deserve much equity at all - equity at this point is a bonus and a motivator to act in the company's best interests.
This works great. The problem comes along when we bring in sub-market salaries. The reduction in salary or benefits demands an increase in equity - equity coming directly out of the founders.
And here's where it all falls apart: to make up for below-market compensation, the amount of equity that would be rationally required would mean too little equity to account for founder risk. The numbers simply do not add up.
I agree, the risk vs reward has to be fair and make sense. Below market salary AND very little equity is just plain wrong. You better be curing cancer, going to space or some intangible that makes that sort of equation worthwhile. Most startups don't. Space X comes to mind though :-)
I've learned that founders have a much greater risk/reward ratio than employees. The ratio is really not even close. The assumption that founders risk it "all" is a fallacy. The assumption that employees have less risk is also inaccurate. It depends on the situation, sure -- but I know plenty of startups founded by people who can crash and burn and not have their livelihood affected.
As for "risk compensated with appropriate equity", I'd have to say that most early-stage employees get screwed. The only case where early-stage pans out with commensurate reward at the employee level is when a company goes public. Given that most successful exits nowadays are through acquisition, most early employees are simply hosed.