Vinod Khosla and Sam Altman on how much equity to give your first 10 employees

There's a handful of companies that have been able to get those people in the early 10, 20, 30 employees that could go start their own company and that go to later. PayPal's a famous example, Sun's another one. What did you do at sun and what has happened at other companies where you've seen this, where people build this phenomenal early team that goes on to be wildly successful.

I see this as a major problem nowadays. People aren't allocating equity widely enough. I think among the first three or four founders at sun, we kept less than half of the common. The total was something like 25 to 27% for the founders in equal or slightly larger chunk for everybody else we would hire. And then investors had a minority, but a significant minority. So it was like 40% for investors after the A round, something like that. In retrospect that was a very good idea. So when last year my son started his company, I said keep 15% for yourself instead of 45. He could have done either number, try and hire one or two people at 15% even though they're coming later, even though they didn't come up with idea. But, but that would be incredible resources, especially magnets to attract other people or bring essential skills. If you believe a company becomes the people it hires, then your key task becomes attracting the people. And selling depends on magnets. So Bill Joy was an incredible magnet. People wanted to work with Bill and Andy and even if Bill didn't do a day of work, he was more than worth it because he helped attract Eric Schmidt. I don't think Eric would have come work for me as a 25 year old. Full circle back to equity. As much as leaving 30% of the pool to non founders. Neil kept 15%, hired a co founder for 15% and then left the rest to hire great employees. Now it is dependent on the area you're working in. He was working in AI. He wanted the people who were all making million dollar salaries at Google and Uber and other places as engineers. So you had to give them 3, 4, 5% each. And you'd normally not think about it. But if somebody can do their own startup, they will. So you're not comparing them to your job, you're comparing them to them starting their own company. And if you don't do that, you're including only the people who couldn't start their own company who won't help you evolve your plan.

A thing that I hear a lot is I can hire an engineer for X per basis points, so why would I ever pay like 5x or 10x. Then I always say, like, wait, in two years, ask me again if that was the right decision. But the quality of people you can get if you're super generous with equity. I think this is the shape of things to come. I have found that it's harder to convince founders of this than I would have expected because it's not intuitive. Well, also, most investors say make the option pool as small as you can because they'd like to own as much as possible. And it sounds really good. And until you've felt it, it's hard to convince them.

Or they would like to own a higher percentage, but the pie is much smaller. And if you sort of say, I'm maximizing the size of the pie first, then it doesn't matter what percentage you own.

Look, I think this is the most important piece of advice that we've talked about. Among many important things today. I think being super generous with early employee equity and getting founder quality people as the first 10 employees. I think all the evidence is on the side of doing this, and yet almost no one does. So there's a huge edge if you're willing to do it.

Absolutely. 100% agree that this ends up being the single most important thing in the first six months of a company. And it's incredibly important. You are trying to maximize your chances of success and you're minimizing the risks you're taking on by virtue of the team you're building.