It seems that being employee #1 is a sucker of a deal with a lot of the same downsides as being a founder without the huge upside of being a founder.
Moreover, many of those people are willing to hire someone good who is available for temporary jobs, and hence paying very competitive rates, at the same time surviving on canned tuna themselves.
I've been #1 techie in many failed protects. Not depending how you think about that business ideas and personalities behind them, all those people should be highly respected for putting their neck on the line.
A founder may only be investing an amount in the venture that does not affect their own quality of life. They could have other wealth or means, and losing the entire investment would not be catastrophic. They might have a personal runway of several years before they have to give up and get a day job.
Meanwhile, the early employee at a startup is far from without risk themselves. They are almost certainly not well paid (until the last decade of multi-Billion-dollar Unicorns, startups were NEVER known to pay well). They are also likely not making meaningful savings or even eating into them in the hope of hitting it big. They are almost certainly sacrificing a substantial part of their personal life just as the founder is, risking personal relationships and health.
I can confirm :/
Worked at a startup as an employee, made a significant financial loss, living on savings and eventually credit, because cost of living was higher than income. Eventually had to stop.
This happened gradually as I just couldn't keep up the work. Employer was annoyed with me for not doing more work. I kept telling them I had to do other work because their pay didn't cover my essential bills. They kept telling me if only I would finish X, Y and Z we'd have more money coming in.
I took a risky bet and lost - as an employee. I don't resent it, they really couldn't pay more. But it was definitely a gamble.
That financial cost still has lingering effects years later.
Don't assume employee #1 or #2 is not taking on a risk.
I'd still like to work at a startup! But I'll automatically turn down offers with low pay now, as well as offers of "no pay at the moment until we get investment" which I had some of this summer.
I knew exactly how much was in the business bank account. There were no secrets about the state of the business. I knew how it had arrived at the state it did as well, and its development and investment history.
The developer I was replacing had just died, before the product was ready. He was a good friend.
I could either take it on and try to make it work or not.
They weren't underpaying due to failure to value me. They were underpaying because we mutually agreed the project was worth it, and there was the pot of money that there was.
So I took on that risk on full knowledge as (replacement) employee #1. Yes, that's a business risk.
The amount of money they put at stake can be very little, either living off Ramen which is cheap, or coming from a previous venture, then it's negligible. You should generally follow the same principle as investing in stocks: "Never invest money that you can't afford to lose."
A lot of people also see a risk to reputation due to failed startups, but for the first 1-2 it doesn't really matter, and as long as you raise _some_ early round and have good explanations/takaways for why it failed, and you didn't pull anything shady, it will only increase your reputation.
By taking an employee founder is effectively paying monthly, mind that, very expensive, insurance which provides free hands at any moment when needed. Employee's benefit is immediate, unconditional and guaranteed. The opposite of being an owner of business.
The employee takes money from the company, not the founder. Those two are only the same for the pre-seed phase of a startup. It's also unlikely that any people are employed before some investment round has been raised.
Once some investment is raised, the money comes predominantly from the investors and not from the founder. At that point the risk for the founder is mostly gone.
I'm not saying that there is no risk at all for the founders, just that it's concentrated in the pre-seed phase of a startup.
> This is none of the employee's business to assess founder's risk exposure
If you are asking me to join your very-early-stage startup, you can bet your ass that I'm going to probe you on your risk exposure.
Of course not every company has investors. In fact I personally strongly favor that for my own endeavours nowadays, but that's not what the discussion was about.
Don't say "I'm taking all the risk over here" because it creates an adversarial dynamic with your team. There is no need for you to separate yourself from the rest of the company in that way. You're all on the same side and the language should focus attention on cooperation and the benefits which cooperation will bring. Writing a check takes seconds. Real work takes hours, days, months, years off of a person's finite life. Try to stay grounded in the real world.
What risk exactly are we talking about and who has suffered it? (I'm assuming your suggestion of 'neck' is hyperbole)
This is usually compensated with stock, which is currently worthless but may not be in future. In effect, the employee is giving the company a high interest loan with a high risk of default.
Calling BS on this has not yielded any great results. If not anything, there should be some clause that benefits the first 2 or 3 employees with an outsized monetary outcome, if the company becomes immensely successful.
The above equity numbers probably make sense if founders have worked on the idea for a while, built some reasonable MVPs, done market validation, have found reasonable PMF and all that.
Bottom line, it's not worth being the first engineer purely from a monetary standpoint.