cto, negotiationI’ve been helping out a friend of mine for the last few years on launching his startup, which he’s just rolling out now. I’m his tech advisor as well strategist and “designer”. He refers to me as the CTO of the company, as well as introduces me to any potential investors as the CTO as well.
The company hasn’t raised any money yet, but is looking to do so. What I’m interested in is some equity. He hasn’t made me the full time CTO yet because I can’t commit it to that just yet, given he can’t afford to pay me a salary yet. I’ve also been on and off for the last several years in helping him, so I understand his hesitation in appointing me official CTO right now given my history of “shakiness” while I figured out the rest of my career.
Recently however, I have been more seriously working with him, as the company has finally gotten closer to rollout. The plan is that when he raises his first round, he’ll make me an offer to join as the CTO with some equity.
The problem is that I feel uncomfortable not knowing what this equity amount is now. We have a written agreement that I will be given the right of first refusal on the CTO position, but this agreement does not specify equity.
Should I negotiate equity before he raises the first round or after? And is there anything else you’d recommend I’d be cautious of in this situation, or things I can do to ensure a good outcome?
I think that you should have discussed all those aspects early on, openly and in detail. That would prevent any misunderstanding or worse in the future. Based on startup stories I’ve read, situations of mixing friendship and business without clarity are rather common and, at the same time, potentially quite dangerous for both aspects. I would say that the sooner you will discuss and put in writing comprehensive details of your participation in the startup, the better. The details should include your compensation along with a clearly defined set of responsibilities, etc. Good luck!
It’s an interesting situation you are in.
You dont share a lot of details on any existing contracts and obligations.
So here’s what I would do.
To find this number you should consider; A. How much time has each of you (and possibly other involved in the startup) invested? B. How much money has each of you invested? C. Are there any intellectual property, patents, or similar involved for any of you?
The answers should give you and idea of a fair equity-split, and as you see - this way of calculating equity doesn’t take “on/off” periods into calculation. Solely time, money and IPs brought in to the project.
A. Can you protect all - or vital parts - of your work in this project with intellectual property rights? (Did you include any of your previous right?) - you can give the rights to usage, but keep ownership on your hands. I would claim this (to an extent you find fair) according to any unfair equity-split he suggests. Unless this is already defined in existing contracts of course.
B. As a CTO you would want to limit the Companys legal rights to your ressources. I.e. you should have responsibility for xxx to work, but not be required to actually code/develop/setup this yourself.
C. Secure you have staff + budget to carry out the responsibilites you sign up for. Otherwise you might end up with little or no salary and a contract that states you are responsible for delivering xxx. Which will then only have you to carry out the job.
– Hope it makes sense - and that your business partner know the true value of a good CTO in a startup project :-) May the equity-split be with you.
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