How do I protect my company from my programmers who've been given small equity in my startup, who want to code from home instead of commuting to work?

You're the boss, you set the rules. It is not unreasonable to expect your staff to work from the office unless you set a different expectation at the time you employed them. I've encountered similar issues before now, where it reached the point we would get calls at 8:45am from software developers telling us they wouldn't be in today as they were working from home. We needed a culture change from the lax attitude that had developed under previous management so that all staff understood that working from home was a privilege, not a right. A request to work from home had to be made to their line manager, and that there was no obligation to accept such a request. This was a time of great change at the company and I was certain we would achieve more by everyone being in the same place. Once we'd either convinced or discarded the nay-sayers, our results increased considerably. It does sound like you have bigger issues than this though. Either you're being paranoid (possible, but seems unlikely), or you are being duped. This needs to be nipped in the bud straight away. I think some frank discussions need to be had. For the record, I do have a software development background and fully appreciate the benefits of being able to shut off from all external stimuli to 'get stuff done'.

I've worked on many remote teams over the last 5 years and all but one of those were very effective. The thing that separated the good ones from the bad ones was accountability. That means that the project managers set reasonable expectations, and monitored all deviations from those. Periodically, people would check to see how far people were off compared to others in their group. If some were much slower and didn't bring more to the table, say less QA time or a greater complexity of work, then other people would be considered to replace them. It really is that simple. As for your worry on clones or whatever, I'd advise you to get your legal paperwork right. Then speak to these people regularly so you get a handle on their activities and figure out why you might not trust them. You may have a good reason, or you may have less idea of what's involved than you may think.

First, stop being so suspicious and paranoid. It's perfectly okay in this day and age to work from home, and your employees do not have to be accountable to you for what they do on their own free time. Second, have more faith in yourself. From the way you have framed your question, it appears you do not code yourself? If that is the case, there must be something else you bring to the table - deep expertise in the vertical, key connections with potential customers, marketing know-how - something which you uniquely possess that made you pursue this idea in the first place. The guys who are coding don't possess this. Merely building a product is not enough. You have the ability to sell this in a way they do not (right? else, you shouldn't be pursuing this idea if you add no value!). That makes a world of difference. Third, if you believe they are not producing enough work for 40 hrs a week, you need to do a better job of setting goals and managing the project. Make sure you have a realistic idea of how long a specific task will take. And finally, only hire people you trust and once you hire them, continue to trust them!

Shuba is absolutely correct. Even if they were creating a clone of your program, are you so insecure in your ability to sell it, that they offer serious competition? I have yet to find a metric that quantifies hours worked to lines of code. Hopefully you are using Scrum or Agile development, so you are discussing goals and tasks on a daily/weekly basis. 75% of software development is staring at the ceiling/jogging/whatever works for solving a puzzle, 25% writing code. This is why, in my experience, developers who work from home tend to produce code faster. Hell, one of my employees spends half his day playing Minecraft and MMOs on one screen, while coding on two other screens. Most people would think he was goofing off, but he has pushed out more solid applications than entire software development companies. There is a strong overtone of paranoia in your post. I have never heard of any software developed under tight secrecy that ever amounted to much. Pretty much every successful application is a copy of a copy of a copy of something else. Success is written by those who know how to market and sell, not by the product itself. If you are not confident that you can outsell your programmers, your in the wrong business. A good, solid product makes the sale easy, but I can show you a long list of famous software that is crap compared to their under-marketed competition. Also, refactoring is the process of taking a snippet of code and re-writing it so that it is more generic and reusable, without changing its functionality. It is a common process in the development cycle that increases code readability and reusability. What you are describing, isn't them refactoring the code, but rewriting the code.

Very simple solution. Require from all programmers/developers/everyone to use http://RescueTime.com (RescueTime), get business version and you will see how productive they are each week. I use RescueTime to help me concentrate on the task, but it is a brilliant piece of software to monitor your team performance.

Learn Programming. Seriously. You are overly paranoid, which makes me believe you have little technical background, nothing wrong in that. If you think technology & products can be bound by agreements, you are in the wrong business. They could very easily rip off, improve/degrade the experience and claim the said derivative as their own. If you think the above is plausible go and find a company in your city that you can outsource to. If you are technical, then you already know this & it's just a matter of not micro managing everyone and having a frank discussion on a variety of factors - compensation, stock options (small = may not be enough if they are responsible for the core functions) etc.

If you aren't able to stand up to your own employees and define policies for your company, there is a bigger problem, here.