I've started several companies and also been a first employee (and so have a number of my family members), and I've experienced multiple situations (and seen others second hand) where subsequent employees contributed more than at least one of the founders. This includes everything from founders being unmistakable liabilities to even one case where a 50% owning founder ended up doing quite literally nothing but playing online poker and silently attending meetings for his entire tenure, which lasted half a decade.

The problem with the issue is what constitutes "deserving" of a larger share of equity. Obviously there are different perspectives on this, but in terms effort, there certainly are many cases where employees eclipse founders. I literally just finished a conversation 30 minutes ago with a c-level exec about how the one founder of her company who is still present (there were two) never actually did anything other than give talks and never had anything to do with operations or strategy.

Even in the case of taking on risk, a founder with enough personal wealth and/or strong professional network that failure doesn't severely impact them is certainly not taking as much risk as an employee who is living paycheck to paycheck.

In short, I've seen more than enough cases where strong, effective employees worked harder, took more risk, and contributed more to the success of the company than one of the founders. I'm not sure by what metric the founder "deserved" more equity in those cases besides being there from the beginning.

Of course when you take the worst possible scenarios it doesn't look good.

I don't think anyone could argue that employees deserve the same equity as founders.

But what's really the difference between the first few employees and a founder? This is especially true for employees who are ridiculously crucial to the early success of a project when the value of the equity is non-existent. Is being part of a company 6-12 months earlier truly worth 10x-20x more than the next person?

Better question here - who are you to judge this? A prospective employee is by no means forced to accept employment with a start-up where they're receiving a smaller share of equity than the founders. There is no grounds for any sort of argument of what is "fair" when you are on the receiving end of a job offer. If it's not fair, don't sign on. If you don't like the terms of the deal, renegotiate or find another one. The founders / current employees can offer whatever they would like - you have the ability to decide whether or not you want to accept those terms.

Problem with this thinking is that it assumes the employee knows what's fair and isn't being lied to by the startup.

That's really not the case.

my general rule of thumb is: founder is someone who starts before salaries, employee is someone who is paid a near-market salary on day 1.

the risks of starting before salaries are that you will accumulate a ton of debt (or waste away your savings, or both) for a project that ends up going bust. you will lose many friendships, perhaps even your marriage, because you believe so strongly in an idea that ultimately may or may not work out, and you put 100% of your available time and effort into it.

there's nothing particularly glamorous about that statement i just made. starting a company is hard and it sucks and it usually ends in failure with the founders hating each other.

There is no general answer to this one, but I'd say those 6-12 first months are when the company is most derisked. If you're going to be employee #1 of a 12-months-old startup, it means it still exists (vs all those failed projects), so it is much less risky, and founders are compensated for this risk (don't forget that in most case, their huge share of equity will be worth nothing in a few years!).

Of course once employee #1 joins he usually works as hard as the founders and I understand if he wonders why he got so little equity but those first months are more crucial than appears.

Let's take the example of the company I'm cofounding (tldr.io). When we started 10 months ago it was nothing more than a crazy idea with a very low chance of success (summarizing the web). Fast forward to today. We're still not ready to hire but we're getting close. The crazy idea has become a "there actually is a chance, although small, that it will succeed". I feel that the difference is huge.