equity, ctoI am planning to join a one year old European startup as the CTO/Developer/Product Owner for an already running startup with no revenue but fair media attention. It’s currently valued at 1M after two rounds, there’s a CEO and COO with 70% equity and no salary, they have several investors at around 6% and they allocated 10% to hire a CTO and maybe a CMO in the future.
The startup has been running for the past year and I helped them (as a freelancer) build a product that did not get traction or revenue so the idea is being dropped. They already have a team of 6 employees, some Business Intelligence and a few providers lined up.
I am planning to join the startup and build the new product from scratch (website + mobile app) along with a small dev team (1 dev + 1 intern) for one month and then continue running the IT myself.
How much equity should I get (considering I don’t want salary) as the CTO/Developer/Product Owner?
First you have to answer the question - are you becoming a co-founder of this company or a valuable employee that will get paid in shares.
Generally, a startup that builds a tech product has to have a tech person on the founding team, which means it’s better for the whole company that you become a co-founder. I assume there’s already some traction (traction can be not only users, could be signed partnerships or having an important advisor on board, also the media coverage you mentioned). In this case, I’d say it’s ok to get around 8 - 10% equity + 3 years cliff & 2 years vesting sounds fair.
I’m based in Berlin so these numbers are common here.
This is often a question of what you (and the other principals of the company) believe the value of your contribution is.
If your role is going to be a total overhaul/rewrite of the product, then I’d say that’s a substantial contribution, wouldn’t you? After all, without that overhaul/rewrite, what are the company’s prospects of surviving as a going concern?
That’s markedly different from someone who comes in and makes incremental improvements or adjustments to a product which are nice but not make-or-break in terms of the viability of the company or product.
Disagreements over equity can be a deal-breaker, and are the most common source of friction among founders, especially in scenarios where a company is pre-revenue and there’s no way to make more than an educated guess (that’s what the sales projections of any startup are, really) as to the company’s valuation and therefore the value of each founder’s position. After all, would you be content with 5% if the valuation was $100 million versus 15% if it’s $20 million?
This isn’t an easy question to answer, but it will take flexibility on the part of everyone involved to come to a fair and equitable agreement. For what it’s worth, my suggestion is that you resolve this before you write one line of new code or they make any further commitments. This will avoid unpleasantness if it turns out that you can’t reach an accommodation after already making a time investment in working on the product.
I hope this helps.
Good luck!
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