Why many engineers value startup equity at $0
Information asymmetry, liquidity constraints, and incentive shifts in startups
Dear Potential Tech Worker, or Tech Investor,
There is common advice among experienced tech workers that if a company is not public, you should value its equity compensation at $0.
This is generally good advice. It is a rational response to uncertainty, opacity, and repeated negative outcomes.
This letter is written for two audiences: for those new to startups, to explain why that advice exists—and for those shaping the system, to argue that it should not have to.
Over the last decade, I have been an early or founding engineer at five startups. These were not obscure companies. They were well-funded, venture-backed businesses that entered hypergrowth phases and, in several cases, generated substantial wealth for founders through secondary sales or eventual exits.
Across these companies, a consistent pattern emerged: founders were allowed to de-risk early, while the employees who built the companies were structurally prevented from doing the same—despite being encouraged to behave as if they were co-owners.
This letter is not about failed startups or obvious scams. It is about a repeatable incentive structure that produces the same outcome for early employees even when companies appear outwardly successful.
I want people entering this system to understand it clearly—and I believe the system needs reform.
If employees were allowed to ask the same questions as investors, many would decline the offer.
Before going further, it’s worth being clear about scope. This is not an argument that startups should eliminate risk, guarantee outcomes, or pay public-company wages. Risk is intrinsic to startups. What matters is whether that risk is symmetrical, legible, and chosen with full information. If equity is used to compensate labor, it must function like ownership in practice—not merely in rhetoric.
The Pattern I’ve Seen Repeatedly
In nearly every case I experienced, once companies reached Series C or D:
Founders took secondary liquidity, sometimes without meaningful disclosure to employees.
Early employees were contractually and structurally prohibited from accessing liquidity.
Decision-making shifted away from the people who built the product toward newly hired executives.
Feedback from early employees stopped being meaningfully incorporated.
Founders increasingly disengaged from day-to-day operations after de-risking.
In multiple cases, employees were not informed that secondary sales had occurred at all. I do not know the precise amounts involved. What I do know is that founder engagement, risk tolerance, and incentives visibly changed afterward.
Meanwhile, founders at multiple companies were able to de-risk and move on comfortably—often securing high-paying roles at other startups or public companies, or attracting further investment—despite outcomes where early employees frequently saw far less upside than the risk they carried.
This pattern was not accidental. It was incentive-driven.
Equity Is Not Ownership in Practice
Equity is routinely presented as a way to align employees with the long-term success of a startup. Early employees are encouraged to “think like owners,” sacrifice short-term compensation, and absorb risk in exchange for future upside.
In practice, however, employees are denied many of the basic attributes of ownership.
Most employees are not clearly told their true fully-diluted ownership percentage. They are often not informed when founders engage in secondary sales. They typically have no visibility into capitalization changes beyond their own grant and are excluded from governance or strategic discussions.
Most critically, employees are often contractually forbidden from selling equity—even when founders do—and bear concentrated downside risk with no meaningful way to de-risk.
Employees are also discouraged from pressing on these topics. In my experience, candidates who ask direct questions during interviews about capitalization tables, fully-diluted ownership, secondary liquidity, governance rights, or valuation frequently see the interview process end early. Offers are not extended. Further discussions quietly stop.
Many people in the industry recognize this dynamic, even if it is rarely stated explicitly.
By contrast, institutional investors typically negotiate explicit information rights. Cap tables, secondary transactions, liquidation preferences, governance rights, and valuations are disclosed to them as a matter of course.
The message is clear: investors are treated as owners; employees are not—despite being told to behave as if they are.
This information asymmetry is not incidental. It is structural, and it is enforced.
Valuation Opacity Further Obscures Reality
Even when equity compensation is disclosed nominally, the information required to evaluate it is often obscured.
In some cases, employees are not given access to 409A valuations, fully-diluted share counts, or sufficient context about preference stacks and liquidation waterfalls—the basic inputs needed to reason about the value and risk of their equity. Instead, companies emphasize private-market valuations or headline funding numbers that are not directly relevant to common shareholders.
This creates a distorted picture of value.
Employees are encouraged to think in terms of paper upside while lacking access to the data needed to assess dilution, liquidation preferences, downside risk, or realistic exit scenarios. In many venture-backed companies, stacked preferences alone are sufficient to wipe out common equity even when a company “exits.”
An ownership stake that cannot be reasonably evaluated is not ownership in any meaningful sense. It is a lottery ticket with unknown odds.
Valuing it at zero is a rational response to missing information.
How Incentives Shift as Companies Grow
In the earliest stages of a startup, incentives are often naturally aligned. Everyone is focused on the same question:
How do we grow the total pie?
At small scale, individual contributions can meaningfully change the trajectory of the company. Shipping a feature, fixing a core system, landing an early customer, or avoiding a costly mistake can noticeably affect outcomes. Cooperation is rational because success is visibly shared.
After a certain size—often following major funding rounds—that dynamic changes.
As headcount grows and valuation becomes increasingly driven by market conditions, capital structure, or executive-level decisions, the marginal impact of any single employee on the company’s overall success declines. An individual engineer’s work may still be necessary, but it is no longer sufficient to materially move the company’s valuation.
At the same time, the marginal impact of that same employee on their own compensation often remains significant.
A promotion, a title change, a larger team, a re-leveled role, or a revised equity grant can meaningfully improve personal outcomes—even if those changes do little or nothing to improve the company itself.
At that point, incentives quietly flip.
The question stops being:
How do we grow the total pie?
And becomes:
How do I grow my portion of the pie?
This creates a structurally adversarial environment. Employees are no longer primarily incentivized to cooperate with one another, but to compete for scope, visibility, headcount, narrative control, and perceived impact.
This shift produces predictable outcomes:
Internal politics begin to dominate over execution.
Employees optimize for work that is legible to management rather than work that is necessary.
Headcount and scope become tools for personal leverage.
Work that reduces risk, complexity, or cost is undervalued relative to work that increases surface area.
Colleagues increasingly become competitors.
None of this requires bad intent. It is the rational behavior of people responding to misaligned incentives.
Once employees are pitted against one another for personal upside, cooperation degrades, institutional trust erodes, and the organization becomes brittle—often at precisely the moment when coordination and operational excellence matter most.
In my view, startups should do everything possible to avoid reaching this size and structure prematurely. Scaling beyond the point where individual contributions can meaningfully affect outcomes—before incentives, governance, and transparency are redesigned—is not a sign of success. It is a warning sign.
Labor as Capital—and Why This System Is Class-Biased
When I joined these startups, I considered myself an investor.
I did not come from wealth. I did not have capital to deploy. The only thing I had available to invest was my labor and my time.
Time has value. Labor is capital.
Yet in the venture ecosystem, labor is structurally valued less than financial capital. And there is very little someone from the lower rungs of the socioeconomic ladder can do to change that.
Employees must pay rent. In places like the Bay Area, that means accepting cash compensation sufficient for survival, which immediately limits negotiating power. You cannot meaningfully hold out for better terms when your cost of living is fixed and high.
Investors, by contrast, deploy surplus capital. They are not forced to liquidate their position monthly to survive.
This creates a fundamental imbalance:
Employees invest their productive years into a single company.
Investors diversify risk across portfolios.
Founders are able to convert illiquid equity into cash.
Employees are not.
When labor is treated as inferior capital, the system systematically disadvantages those without wealth. For people without family buffers or financial backstops, the downside is not abstract—it is personal.
Incentives After Funding Break Companies
After major funding rounds, I repeatedly observed incentives become misaligned with both employee welfare and long-term business health.
Growth targets were often set far beyond what the technical infrastructure or organizational maturity could support—not simply because projections were wrong, but because incentives rewarded overpromising. Hiring accelerated faster than teams could integrate new employees, creating operational chaos.
Narratives presented to boards and investors emphasized momentum and upside while minimizing operational reality. Decisions were made based on incomplete representations of company health.
Operational authority was delegated to newly hired executives—often unfamiliar with the product, customers, or systems that early employees had built. The people most familiar with the business were sidelined.
Many of these companies could have succeeded. Instead, incentives pushed them toward brittle growth and eventual collapse.
Founder Disengagement and Visible De-Risking
In some cases, founders later departed the company entirely and remained unemployed for long periods of time, while making lifestyle changes—such as purchasing expensive homes—that would not have been possible without substantial prior liquidity.
I do not assert impropriety, nor do I know the precise financial details. However, these outcomes are consistent with founders having successfully de-risked, while early employees—who retained full financial exposure—were given no visibility into those transactions and no ability to do the same.
Employees were expected to continue operating under the assumption that everyone remained equally exposed.
That assumption was false.
Why This Was Personally Costly
I went all-out for these companies.
I routinely worked nights and weekends. I carried critical infrastructure, core systems, and delivery risk. I approached these startups as if they were my own companies, focusing on execution, cost discipline, and long-term viability.
That approach became increasingly misaligned once organizations began rewarding political positioning over measurable contribution. In several cases, the people most urgently trying to prevent failure became liabilities once failure was no longer personally costly to leadership.
Financially, that belief—that stewardship would be rewarded—was mistaken.
I chose startups over public-company offers that paid substantially more because I believed in the missions, valued my colleagues, and was repeatedly told that early contributions would be meaningfully rewarded.
Today, I have only what I was able to save from startup salaries—salaries that were consistently below market. Serious life hardships exhausted those savings.
This outcome was not buffered by family wealth. My family was in the bottom quartile of the socioeconomic ladder. I had no safety net.
Meanwhile, founders at multiple companies were able to de-risk and move on comfortably.
I do not regret the work or the experience. I regret the structural outcome—and the assurances used to recruit and retain early employees without enforceable alignment.
Why Investors Should Care
The pattern described here is not just unfair—it is value-destructive.
Many of the companies I worked at could have succeeded. They had real products, real customers, and real revenue potential. Instead, post-funding incentive misalignment drove them toward brittle growth and eventual collapse.
When founders de-risk without symmetry while employees remain fully exposed, you create the conditions for founder disengagement, employee disillusionment, and organizational fragility at precisely the moment companies need operational excellence.
When early employees—the people most familiar with the product, customers, and systems—are sidelined in favor of newly hired executives optimizing for political capital rather than outcomes, you fund your own failure.
Greater transparency and symmetry would not reduce returns. It would increase them by maintaining alignment through the critical scaling phase. The current system doesn’t just harm employees—it destroys portfolio value that investors have already paid for.
A Case for Reform
Valuing private-company equity at zero is a rational adaptation to a broken system. It should not be necessary.
If startups expect employees to behave as owners, then employees must be treated as owners.
At a minimum, reform should include:
Transparency: Employees must know their true fully-diluted ownership percentage.
Valuation disclosure: 409A valuations and relevant preference and waterfall structures should be disclosed to employees, not obscured by headline private-market valuations.
Disclosure: Founder secondary sales should not be hidden from employees.
Symmetry: If founders can sell secondaries, employees should have proportional access.
Liquidity access: Blanket prohibitions on employee liquidity while allowing founder liquidity are unjustifiable.
Compensation transparency: Greater transparency around founder and senior-employee compensation resolves many downstream conflicts, even if it introduces short-term discomfort.
Market access: Private-market liquidity should be allowed, not contractually forbidden.
Full transparency does not eliminate conflict—but it resolves many of the most corrosive forms of it. Ambiguity, secrecy, and asymmetry do far more damage.
Closing
Startups depend on trust. Right now, that trust is routinely abused.
Workers deserve to understand the system they are entering. Investors should reconsider incentive structures that repeatedly destroy value. Founders should not be permitted to de-risk asymmetrically while the employees who built their companies remain fully exposed.
This system is not broken by accident.
It is broken by design.
It can be redesigned.
An Open Invitation
If you are building a startup—and you are willing to engage with me fairly, transparently, and honestly as a co-investor whose capital happens to be labor rather than cash—I would welcome the conversation.
I am currently working toward my next project, and I genuinely enjoy building businesses from scratch. I do not treat startups as jobs. I treat them as enterprises I am helping to create.
I bring urgency, long-term thinking, and a bias toward execution. I focus on building durable systems, controlling costs, increasing revenue, and avoiding the failure modes that destroy otherwise promising companies. I take deadlines seriously. I take operational risk seriously. I take stewardship seriously.
I am not looking for vague promises or performative equity. I am looking for alignment.
If you believe that early employees should be treated as actual owners—given real information, real transparency, and the ability to make informed decisions about risk—then we are likely philosophically compatible.
I do not come from wealth. I do not have capital to deploy. What I have is time, skill, judgment, and a proven willingness to commit fully. I have already paid the cost of building companies this way.
I know exactly what I am offering.
If you are willing to build something on those terms, I would love to talk.