CTO wants 30% , should I accept?


2
I need a CTO to join my start up. It is a mobile app. His proposal: 30% equity and wants a 20% employee pool. Leaving me with a 50:30 split.

What I bring to the table:

1) I am technical. One half of the technical work I do already - the mobile application.
2) It is my idea and I have cultivated it.
3) I have spent a year and taken most of the financial risk to get the product to a stage where a functioning prototype has been developed. (mobile app). I am unable to do his side of the work as I am not trained in it.
4) 5 years experience as an employee in a start up that I have helped establish. 5) Heavily involved in the business side of my start up; recruiting etc.

What he brings to the table:

1) Experience as a CTO in the start up realm. With that, years of experience technically and guidance.
2) Already a CTO of a start up working on a similar type of app.
3) Willing to take financial risk to pay server costs

What he wants:

1) Final say on technical decisions
2) Me having the final say on all commercial related decisions.
3) Him working part time for the time being.
4) Co-founder/CTO status. (I have read that investors do not like sole founders)

Current situation:

1) volatile market, need to get the app released before February latest.
2) Struggling to find good quality of coders to do his side of the work. I do not have the capital. Losing time on recruitment.
3) My attorney has 3% on the project already.

Thanks

CTO Equity

asked Dec 30 '14 at 00:58
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User34199
46 points

2 Answers


1

It's high, but as long as you have strong vesting in place, why not? If you feel like this could work out great, the long-term split is not completely wrong (50/30).

However, I do see a bunch of red flags. You seem to need a developer, not a title-inflated CTO. You may need someone who has some serious time to focus on this since your deadline (February) is so close. Your potential CTO is part-time, so there is huge risk there.

Is that CTO a doer, or will he write specs and expect to find someone else to do the dirty work?

Worst case, you get rid of him after 6 months, that will have cost you 4% of equity. Would that be acceptable to you? And to him?

EDIT: hint to the community. My answer currently sits at "-1", which means: please go away, your anwers are not welcome here. Are you sure going negative is the best way to grow a positive community?

answered Dec 30 '14 at 18:01
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Alain Raynaud
10,927 points
  • Hi Alain, I have got him down to 22%. He has agreed to meet the February deadline, has over 10 years start up experience as a CTO, with that launched his own start up already and has agreed to take a backseat giving me the right to over rule any decisions. I do agree that I need vesting in place. What do you suggest? I have given him co founder status, as I am a first time sole founder at the moment, and from what I have read investors do not like it so do not want to chance it. He has agreed to take financial risk - pay server costs. I have also checked his code out. What do you think? – User34199 4 years ago
  • Does he intend to stay with you after February? 22% over 4 years is fine. 22% for 3 months is definitely not. – Alain Raynaud 4 years ago
  • Yep, he is in it for the long haul. – User34199 4 years ago
  • One thing about equity.... It works both ways. If you make a profit, then 22% of that is worth something. If you make a loss, then 22% of that is a liability that the CTO has to bear along with you. IMHO, equity should work both ways. Its an incentive for the upside, but should also be a shared risk for the downside. Otherwise you may as well pay them the money in a bonus rather than give away voting rights with that percentage. – K0d3g3ar 4 years ago
  • And just to illustrate the point, let's say you release your product and some patent troll comes along and sues you for $5 million. Even with your equity attorney, you can't prevail and they win a judgment. If some smart creditor pierces your veil of corporate protection and gets the right to come after you personally, does your CTO share 22% of that risk as well? – K0d3g3ar 4 years ago
  • Tbh I am just releasing a simple social media app, hard to patent it as the concepts are not new, done in other forms. Your point about taking shared risk, I agree with. – User34199 4 years ago

1

What's your cost to get rid of the CTO and replace them? Value it and compare it with what they are asking. Pick the path that is the least expensive. Simple.

answered Jan 1 '15 at 14:55
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K0d3g3ar
41 points
  • I will not give him the equity straight away, and if he does a good job, I will keep him. I am a developer by trade and if there is one thing I know about good software, its to not change your lead developer if he was in charge of laying the foundations of the house, because often that will result in a complete rewrite by someone new. It also seems to be hard to find highly qualified CTOs. I have worked with CTOs before and a good one is gold dust. – User34199 4 years ago

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