> It's always worth offering to take equity as long as they agree in writing to not ever dilute your shares and vest them immediately. However, it's unlikely that any company will agree.
I think it makes perfect sense. It's a guaranteed incentive for a potential employee to increase the value of the company and act in its best interest.
Absent those guarantees, it's smoke, nothing, kaput: 1.5% equity or whatever % can become approximately 0% and there's nothing the employee can do about it.
They could structure the agreement in other ways to incentivize the potential employee: if additional shares are issued, pay a dividend to the employee.
the whole point of equity compensation is that it replaces cash, as the startup rarely has sufficient liquidity in cash.
But equity is often used in ways the employee does not understand and get screwed over. It's also why there are accredited investor requirements for VC/startup investments - so that only those who can afford to pay for a lawyer and such can partake in these deals. Unfortunately for an employee, the loophole is that they don't get this regulatory scrutiny, and also don't have or earn enough to hire a lawyer (and oft times not even access to the cap tables - it's just a literal number of shares, without context).
No wonder employees get screwed while investors (of the accredited kind) don't.
> the whole point of equity compensation is that it replaces cash, as the startup rarely has sufficient liquidity in cash.
Understood and it makes sense. Offering equity to a potential employee is a way for the employee to benefit potentially on future growth in the company.
I'm proposing that if there is a future funding round, pay the employee a dividend from part of the proceeds. Or maybe give them more shares or a combination; but put it in writing from the start.
Well, yes, because that’s insane.