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Employee (E): I've been working for X long and the market rate for what I do is Y so my contribution is worth $100 (just a number - don't get all upset about it)Owner (O): So what do you think the business is worth at this point? We have no investors, no consistently paying clients, etc. We don't have $100 to offer you.E: Well if I had taken a job with an established company my salary would have been more like $135, so I'm really giving you a break.O: What do you think the company is worth at this point in time? That is, if we HAD to sell this thing AND we could find a willing buyer, what do you think a fair price would be?For sake of argument, let's assume that E and O agree that the current value of the company (with an early stage product and no established run rate) is $75. What usually follows is a 3 hour conversation (it's amazing how consistent this length is) about how it is impossible to take a $100 slice out of a pie worth $75. Multiply this by a few employees and the distortion increases. How do you get $1,000 worth of slices (the total "contribution" of all employees) out of a $100 pie?Then the argument turns it two ways first is "future valuation" (the employee version of a convertible note) - so what converts when? what is the "trigger event" for valuation and conversion? what if the pie still isn't big enough to cover all founders, employees, and investors?The second major theme of the argument is "what I'm worth" or "what I could have made if I had taken another job" ... You join a startup because you believe in what's possible (and you can come to an agreement about how and when that will be compensated), not for security. If you want security and can get a "real" job that pays you "what you're worth" -- you should probably take the job.