> Founders certainly deserve a huge premium for starting the earliest, but probably not 100 or 200x what employee number 5 gets.
When the founders started the company, their equity was pretty much worthless. When employee #5 is hired and gets 0.50% of the company, her equity presumably has some dollar value. Employee #5 gets a better deal than the founders, even though the founders have 100x more equity.
The only thing that matters is the dollar value of the equity at the time it's awarded.
The dollar value at the time it is awarded matters zero. As an employee the only time a dollar value matters is when I can cash out. The problem is that you have to predict the percentage contribution of an employee from now until liquidation before they do any work. (This is why we vest options, so that if they don't contribute they don't get anything.)
The employee typically gets options, not equity. They are valued at the current market value of the company and cost that amount to acquire. So the value upon grant is 0[1].
It depends on what you mean by value; if you mean the price someone is willing to pay for them this is clearly not correct -- otherwise every out-of-the-money option would sell for 0.
When the founders started the company, their equity was pretty much worthless. When employee #5 is hired and gets 0.50% of the company, her equity presumably has some dollar value. Employee #5 gets a better deal than the founders, even though the founders have 100x more equity.
The only thing that matters is the dollar value of the equity at the time it's awarded.