A few months ago, I was asked to join a startup for $85k/year. All the company really had was a pretty big angel investor and one guy with the idea (wealthy father and son with the idea). Before they brought me on, they had spent some money on marketing the hype behind the idea itself, built a pre-registration and that was it. When they brought me on I built the very first MVP that works well. After 3-4 months they awarded me 2% of the company's shares and said I have an opportunity to earn more as long as I grow with the company. Building the whole software up until now, makes me believe that I am entitled to much more than 2%, but i really don't know how this works. Do I ask for more upfront? or is this a type of thing where I get some sort of 5 year plan to earn up to 20% of the company. The CEO of the company is assuring me that I can own up to 20% of it as long as I stay with the company/work hard etc. I just don't want to spend 12 hours a day on it if i'm not going to have a bigger stake in it. What are things I should watch out for, and how much equity should I be looking to get in this situation? Keep in mind that the angel investor still is able to expand for us by hiring more programmers, hiring internal help or anything we really need to get to the next level.
Sadly for you it doesn't work like this. These guys have the vision and the money, so all they need is the capability to deliver which they can get from any decent developer. Yes, you built it, but just like when a property developer gets builders in to build that fabulous house, it isn't the builder that takes a big slice of the profits. You just pay the builder the going rate for a builder.
Saying that, I think they've been very generous giving you 2% a year on top of the $85k. I wouldn't rock the boat; think about how easily they could go out and hire another developer.
If they are talking about giving you even more, upto 20%, then wow - this is much more than you should ever expect as a developer on the payroll. You're onto a good thing - that is - if the product/website/idea actually takes off and is worth anything. Focus on that.
If you are getting $85k/year (which is a very good remuneration), then why are you expecting equity?
If it was my company and I was paying you $85K/year with no connection to the success of company, I wouldn't give any equity at all.
Don't be upset after seeing the previous three answers. While they are all great points, you may have other choice.
As Joel mentioned in another related question, Forming a new software startup, how do I allocate ownership fairly?, equity is mainly about risk-taking and vesting. (You may also find other great points there)
It's nothing wrong to get a salary being a developer. It's also nothing wrong to wear the hat of entrepreneur to seek for equity as one of the primary members of the startup, when the founder(s) appreciate that.
Now back to your question, the boss said you could get 20% as long as you stay and work hard etc. That's a pie in the air. It's hard to judge if you work hard or not, it's hard to make them happy every year to award you a slice of that pie by promise.
May I suggest, if you are serious about your future equity and confident at the vision, you need to take risk, more specifically, by vesting. A choice is to negotiate a plan to convert a rather part of your salary into equity timely, instead of extra rewarding from the boss only when he is happy.
If both agreed, you need a paper to write them down, or better a contract.
By taking risk you gain a fairer position against boss and investors. The boss will have more confidence on your motivation, and you will only be happy to code 12 hours per day, though not recommended by doctor.
Please note this is only a suggestion probing another possibility. There is risk. Please consider is thoroughly by yourself before taking action.
Entrepreneurship isn't really about the "know-how", it's about the "know-what". You had the know-how all along. In fact, most people with a programming background could have started just about any of the big software companies that once were just startups. The key skill isn't knowing HOW to program, it's knowing WHAT to program (and also what NOT to program). At the same time, as a programmer myself, I understand your point of view: two identically working programs can be built in very different ways. You're putting all your energy into writing quality code and you're thinking about it pretty much all day. That is a necessary but non-sufficient condition for startup success.
In your case, I think a 2% equity grant was a generous contribution ; not to mention that you're also getting a salary. Your programming skill on its own isn't worth much (around 80K per year); it's the skill of vision that makes or breaks a startup and that also makes your programming skills worth more.
I wouldn't say you deserve more than that. They are paying you $85k a year to develop their site. You are a developer and therefore you get paid to do that kind of thing. It's the service you are offering. I would be happy that you got offered equity!
Good luck :-)