"Dead Equity" has some advantages as well. You align the long-term incentives of the company with those of employees who are moving on earlier. If you know that you'll never have to deal with a scaling issue, why would you spend the effort dealing with it? Getting employees invested in long-term outcomes helps with principle-agent problems like this, which can help company performance more than the cost of "Dead Equity".
I see your point but don't really agree with your argument -- in my experience engineers who consciously know what a good or a bad engineering decision for the future is will make the good decisions regardless -- it's the terrible engineers who don't know any better you need to worry about.
In either case, given an extended exercise window both are sitting around collecting value indefinitely after leaving. They don't need to contribute anything to the next "generation" of work but they still collect the rewards. I'd expect that in most high-growth companies the impact of individual contributors quickly gets washed away after they leave.
If you think that former early employees don't contribute to future "generations" of work, then the ethical thing to do is to offer better cash compensations and less equity. It's not really ethical to offer equity compensation that looks like it could be valuable but has significant hidden barriers to actually being used.
> the ethical thing to do is to offer better cash compensations and less equity
That's one of my main points: Employees have the power to refuse employers that offer equity in lieu of fair salary. But my experience has been that people keep falling for the equity carrot again and again, and as long as they keep falling for it, employers will keep doing it.
>I'd expect that in most high-growth companies the impact of individual contributors quickly gets washed away after they leave
I'd argue it's the opposite. Early employees often have an outsized impact on the trajectory of a company and get it to a point where additional hiring is possible. Future generations of workers tend to iterate on the existing (unless there's a significant pivot) and come on board in a more de-risked situation often with salaries much closer to market.
Most start-ups also present equity as a form of compensation for work performed (trading cash for illiquid options). To take away that earned and vested compensation component because an employee doesn't have the money to exercise within the 90 day is not only arbitrarily absurd but also grossly unfair in my opinion.
> Early employees often have an outsized impact on the trajectory of a company
Mmm... I think we'll have to agree to disagree there... Seems to me that the bulk of the work adding value in a company, even if it's "just maintenance", is in the marathon and not the sprint. The initial engineers who contributed to Google Search no doubt contributed value but it's the folks who kept it going strong (and changing for the better) for many years afterwards that are the real company heroes.
And if someone is really such a special snowflake, I don't see why they'd bother working for someone else instead of founding their own company. If they expect to get paid proportionally that is.
> get it to a point where additional hiring is possible
Usually investors do this by injecting cash, at least in your traditional high growth "startup".
> To take away that earned and vested compensation ... is ... grossly unfair
How is it unfair if the employee agrees to the terms walking in?
If Joe Vendor down the street sells something to you at a loss, do you feel bad about buying it anyway? Likely not, since he happily signed it over to you for a reduced price.
If a company really believes that, they're free to back-load their grants and vesting. The reason they generally don't do this is because "dead equity" isn't a real problem. I'm nearly certain most employee options go unexercised. For one thing, most employees don't vest their full grant before they move on. And those that do often can't afford to buy it anyway.
The one exception might be the handful of employees that joined before the first big round, who might still be able to exercise at a negligible strike price. Again, I don't think it's a real problem in the grand scheme of things.
