Having been employee one and started 2 companies - I strongly disagree.
It is hard to find employees/co-founders that (a) have the right skills, (b) the right interests, (c) the right industry knowledge/contacts, and (d) are in the same place in their life to make the same amount of commitments.
And even when you do you find such people, it is hard to give them 10% equity in the beginning and then tell them that they are under-performing, and only deserves 2.5% equity.
Now, I agree, that the definition of under-performing is very different for a startup compared to a more established company. I have also found people are willing to accept when they are under-performing, but contracts and equity that is given is harder to change.
However, I would love to have the right cofounder, and even share the equivalent equity with him if he can take over half my burden.
Perhaps the answer is to find people with a very good fit, start them with low equity (~1%), and tell them how they can get more equity. And then doubling equity multiple times as they are able to rise to a founder level responsibility.
This is normally a problem solved by a four-year vesting schedule w/ a one-year cliff.
IMO, companies offering minimal equity with a promise to increase it later is a huge red flag, since those promises rarely come to fruition. Equity is given to compensate for the risk and work involved in a startup. Once the company is further along, the risk and work required are lower and there's no market justification to increase someone's equity stake. The temptation to ignore those promises is usually too great.
I do agree that the cliff and vesting schedules help here. But those force you to fire someone even if they are good but not perfect. I have been in situations where an early employee definitely believes that he/she can perform better per plan.
Yes, there is also temptation to ignore rewarding someone when the company has progressed. But, it is also a huge red flag when you have a company where major early employees have left. IMO, one of the biggest responsibilities of any startup CEO is in attracting and retaining good talent.
I am not suggesting giving lesser equity upfront, but more towards making a serious decision based on where the person is. If he is a great coder give him the equity that a great coder deserves. But a great coder is different from a great early team member - and it is hard to impossible to make the distinction early on.
As for the red flags that an employees might have when joining a company with such promises - I am hoping that the rest of the team will be able to vouch for it working with regards to them being in the company.
It is hard to find employees/co-founders that (a) have the right skills, (b) the right interests, (c) the right industry knowledge/contacts, and (d) are in the same place in their life to make the same amount of commitments.
And even when you do you find such people, it is hard to give them 10% equity in the beginning and then tell them that they are under-performing, and only deserves 2.5% equity.
Now, I agree, that the definition of under-performing is very different for a startup compared to a more established company. I have also found people are willing to accept when they are under-performing, but contracts and equity that is given is harder to change.
However, I would love to have the right cofounder, and even share the equivalent equity with him if he can take over half my burden.
Perhaps the answer is to find people with a very good fit, start them with low equity (~1%), and tell them how they can get more equity. And then doubling equity multiple times as they are able to rise to a founder level responsibility.