equity, salary, ctoI am ‘working’ for a startup that consists of 5 people including myself. There are four nontechnical cofounders and me, the CTO. I have not signed a contract yet so all the work I’ve done thus far has been ‘for free’ (and I am perfectly fine with that). They came to me with an idea and I made a prototype. Prior to me joining, they had no product, only an idea and business plan. The startup is pre-funding (0 funding from investors). They have no access to any of my work so if they were to fire me they’d be exactly where they were before ‘hiring’ me. How much equity and salary should I be asking for? I am perfectly fine with getting a salary AFTER we receive funding. Would this be a fair split?
4 co-founders (nontechnical) - 60%
me, CTO, sole technical person - 30%
investors - 10%
I was in this position myself 3 years ago. I’m the only tech guy and We were in 3 co founders.
Both of the other co-founders had full-time jobs and they would have limited time to help during development process. I knew that even after we had a MVP, they would still have limited time to invest in the project.
Therefore, I asked for 50% equity and they both kept 25% each. Although they put some money in the beginning, I was the one working full-time basis for a whole year at least.
My advice would be to see how much they would spend on helping the business growing and have much value each one adds. At early stages, tech guys work far more than any other founders, so if they don’t have much to contribute, they should get a smaller equity.
I have been experimenting with partnerships with my friends; we are all technical in various aspects so that makes it easier. One thing that has worked with some degree of success is setting a flat pay rate of $20/hr(or variable rate if necessary) and having everyone log their time and dollars invested. This gets your desired pay rate on the table from day one. The time log then accurately measures equity in the company up until an investor steps in or sales takes off. At that point you all sit down to equity negotiations. All crazy things aside, you will roughly own the same percentage of the company as you put in as labor and financial risk. Its still beta, but maybe you can pull from aspects of that.
The other thing you need to ask is how much are you willing to work for. What is the opportunity cost of going to work for someone else for a stable paycheck instead. How much reward is necessary for you to pursue this risk. Don’t cut yourself short.
My initial thought is to use market value adjusted for risk. In other words, what would another company pay you if you were to go to work for them? A survey of several companies would give you a good idea. That number I would use as a base. Make one adjustment for how risky is the success of the company? And another for your value to the company. Any amount not received in cash should be given in equity. Since your actual equity amount will be negotiated, start with an amount slightly higher than your computed value and be willing to compromise. Don’t be excessive because they might think it would be a better deal if they someone else. Remember everybody is replaceable.
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