What do you think about joining a startup that pays no salary or significantly under market (like 1/3) as a non-cofounder? What would make the promise of generous equity and a bump to market rates after funding worth the trade-off of even an early stage startup that pays slightly under market but still gives meaningful equity?
Just interested in the reaction these offers engender as I'm seeing them more often.
This is a very interesting discussion. I will preface with the fact I have been involved in many start-ups, two we took to NASDAQ, lived through the equity only game during the Dot com era and bust. There are many factors you must consider when taking on a role for equity only and devoting 100% of your time. Can you afford it to fail, are you in a financial position to weather through the growth pains to outside financing or self growth to eventually provide the basics you need?
I have seen a number of startups come and go, and many offer an equity only offer, it means they need you now but cannot afford you. This is where you need to have them open up the kimono and disclose the Cap table to-date. What percentage of the Company are you receiving? Anticipated financing and dilution? How much do the founders have between them. They probably have enough to afford some dilution and have anticipated their percentage of ownership will be reduced by outside investment. Given your equity position what does this mean to your holdings? Do you believe in their set valuation? Often they are overly confident yet they have not acquired outside capital and had the Company valuated correctly.
If you are early in the foundation, you must look at founder stock versus options and determine tax liability. Yes you can work for equity but depending how your deal is structured you could owe the IRS, be squeezed out or simply owe money and have spent a lot of time (opportunity cost). So talk to others that have experience in this and understand the timelines to success.
Startups can be the most fun and the hardest work. But think it through.
So the caution here is to really understand what you are getting into. What is your portion for this sweat equity? What are the dilution and preferences going to do to your "equity shares".
I still see some VCs saying "if you are a co-founder your equity is your pay". Don't know how that works if you live in America and want to eat, have shelter, or support a family. Of course, as pointed out in other responses, if you came off a good exit or have other means there is more flexibility. Even so, given the great majority of startups do fail, pure equity, to me, puts all the risk on one side. Don't see that.
In my last startup engagement I joined as a part-time consultant.to keep the costs down and to allow me to work on other projects. When they started to look at staffing, I pushed for them to offset the low wages by offering a better benefits package and, if necessary, for certain functions, the ability to work from home. We did end up getting several candidates whom were absolutely great, actually more than great. So maybe this approach did work...