How much equity for a non-founding (but close) CTO


2

I am the founding President/CEO of a SaaS startup. I am the majority owner of the co with 60% of initial shares. I am a small biz guy who has worked with one other startup. I don't have a ton of personnel experience but a strong set of advisors.

I have 1.5 devs working on the project but want to hire 4-6 devs and 1-2 designers.

A friend has extensive Project Mgmt experience with MS, Product Management experience and was apart of a startup that sold to Amazon 12 yrs ago.

Considering bringing him on as my CTO. He invested 20k for 5% equity and wants to be the CTO of this new firm. I don't have the cash on hand to pay him what he made at MS or even close but I believe we will wind up getting Angel for 300-600k.

I am offering him 11% equity, 5% for the first year of employment (without any cash compensation, and 6% vesting over 3-4 years.

He wants 20%... He just wants it up front, or vested over a shorter period of time.

Am I within the range of is he closer?

Equity

asked Mar 29 '13 at 13:50
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Tj Sherrill
129 points

1 Answer


2

It sounds like he knows exactly what he wants and it sounds like you value him as a potential partner. I am also assuming that the 20% comes from your share. Given that I would ask you how much would your 60% be worth without him compared to how much your 40% would be worth with him.

Some of the bet start ups made their founders rich even though they exited with less than 10% stake left in the firm. Giving away a larger slice of the pie so that the pie grows and your slice is bigger than the starting pie is win-win.

On the other hand it looks like he's turning down 2% in order to get in faster which suggests that he sees early stake holding as more important than size of stake holding. This says he is interested and keen which gives a slight negotiation advantage to you.

I understand that you don't want to offer handouts but it sounds like you don't want to loose this possible partner which means his position is strong too so you are going to have to yield somewhat. Would a counter offer of a shorter vesting time move you negotiations along apace without leaving you feeling too exposed?

I would not be surprised if he settles for less than 20% up front but you may need to load up more at the start than you have. My expectation would be, from the way you have told it, that an agreement is possible if you are both willing to give a little. A bit of the old "If I am willing to back down and accept/offer X will you be willing to live with Y?" may be your best friend here.

Best of luck and remember me when you are both a huge success.

answered Mar 29 '13 at 22:14
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Matthew Brown
416 points
  • Simply speaking he is in the power position - if he was in a startup sold to amazon he likely looks for something to do, not for income. He wants his value, or walks. And he does not need the money for surviving. Which means he can just walk - and be a strong partner. He likely could be the angel investor, too ;) – Net Tecture 7 years ago

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