I think the equity a startup is offering me is very low. Am I crazy?

I think it means he is not looking at you as a technical co-founder. He's looking at you as an early hire. From his point of view, he has the expertise, the money, the assets, etc... you are just a resource.

If you're in it for the big exit: run away and don't look back. If you think the work is interesting, consider if working on the problem is worth the pay cut. Treat the offer as a job offer & nothing more.

If you get a fair salary and you're given a piece of the company that's a pretty good deal when he's already invested that much, but that does not make you a co-founder, even though that might sound nice as a title.

A co-founder is someone that is carrying a good sized chunk of the risk and that is likely not going to be receiving a market rate salary for a long time. A co-founder would see the stock as their compensation and since it's risky stock there would be more of it.

I can't say much about the risk here, there is not enough info in your post to take a stab at that but unless the guy is very wealthy he must have thought through the risks himself and your risk is limited to a small fraction of what you'll make over those four years in salary.

If it's less than what you made at your last job then maybe you should shop around a bit and see what your real market value is, that will give you an idea of the 'hidden cost' here, which in turn will give you an idea how much that 2% should be worth to make this worth your while.

2% is not much at face value, but if this is the next Oracle or google it might still be worth your time. More info->better advice.

2% and a salary is fair in my limited experience... one of my friends had .5%, the company sold after 3 years for 60 million, he got 300k. He didn't get rich but the last company I was with I had options and they got bought out and my options were worthless.

Here is a decent article... seems consistent with what people tell me... http://www.tonywright.com/2008/a-newbies-guide-to-startup-co...

I would be dubious about joining a company that spent its first million of investment on a domain name.

This just came up in a thread. Jim Clark (who was hugely successful prior) invested $4M in Netscape to get it going. Andreessen got 10%. Now maybe this guy could argue you're no Andreessen, but you can point out that he's no Clark either, and hasn't put in $4M.

I am in a similar situation, where I am 'founding' a company where my cofounder is fronting the money and has the sales contacts to make our venture happen. I am doing all the design, planning and development (hiring a dev team).

I require 10% preferred with up-to an additional 10% common in addition to a monthly salary (we are still negotiating the salary)

If I were you, I wouldnt take anything less than 10%

Here is what you should think about:

Assuming that you will need to go get a series A from VC if your venture gets momentum; you're really talking about splitting up 40% of the company. So at max - your share would be ~20%

As he is fronting the money - and may not need VC, therefore keeping the 60-80% yet your founding and BUILDING the thing, upto 20% is perfectly reasonable and fair.

I would ask for a mix of common and preferred - with a set min of preferred that you want.

2% equity in a $1,000,000 company is $20,000. Over four years of vesting at a 7% interest rate that's about $4,250 a year. It probably doesn't offset the pay cut you're taking...particularly if you consider the risk premium 7% return is nothing. It isn't a cofounder offer, don't kid yourself.

[edit]The domain name may not even be a company asset, and with the kind of control the founder has, even if it is, he is free to sell it to himself for a nominal price making your stock worth less.

I wouldn't do it.

If you're being offered 2% on those terms then I'd rather do my own thing, but thats just me.

You have an opportunity here if you think the business plan has legs. 10% is an upper bound for what you should expect, considering he's paying you a salary and benefits. 2% seems too low, IMHO, so I'd certainly push back on that amount. However, if you are in a position to forgo the salary and benefits between when you join and when the company raises capital (assuming that is in the cards), you should consider that in exchange for a larger equity stake. Depending on the amount of time between when you join and when you plan to raise, I'd say that number is somewhere in the 15-30% range. Good luck!

Think of it this way:

You start a company with him, and have an outside investor give you $1 million. That's a large angel/small VC round. Say it's worth 30% of the company. Would you split that remaining 70% at 68/2 with the guy if he hadn't put any money in?

More importantly, it sounds as if he already considers you an employee (as opposed to a founder). If you want to be a co-founder, this wont end well.