Ask HN: As a CTO for a seed company how much am I worth?
I've been working with a business partner on an app. I've decided to come on as CTO, and we're now hashing out how much equity / salary I should get. Here's the facts:
- The CEO has been working on it this entire past year. He's been iterating over his idea and had a prototype developed.
- I've been taking $1500/week to freelance for him for the past 3 months under the assumption that I will join on eventually. I'm worth $4000-$5000/week from a freelancing standpoint but took the less pay because I believed in the idea
- At my previous startup I was paid 175k + 5% equity. I'm very high in demand.
- I'm developing an iPhone app and until I get a developer that means I will be doing the backend and Frontend programming (both of which I'm skilled and experienced in)
- The CEO plans on giving himself 55%. His father who has paid for the freelancers that he's hired over the past year will get 20%.
- We live and work in NYC
- We have a great working relationship. We work in the same office and get along great and are always hashing out ideas.
He's offered me 8% / 125k. I told him I don't feel like a cofounder at that amount and asked if 15% / 100k was feasible and he didn't think so. We talked for length about it and I feel like I'm worth a lot more than he's selling me on.
Is it fair that he get so much more equity and am I being unreasonable in expecting more?
17 comments
[ 2.5 ms ] story [ 42.1 ms ] thread- unequal equity split
- business plan was decided before you joined
You would be an employee and not a cofounder.
But it isn't 15%. If it's a typical 4 year vesting, it's only 3.75% per year. So you're giving up $75k salary for 3.75% equity in the company. That implies a current valuation of $75k/0.0375 = $2M.
But you are a minority shareholder. You could do a great job, deliver a great MVP, and then be fired after 11 months with nothing (if it's a typical 1 year cliff). The founder could give a sweetheart deal to friend investors, diluting your equity. Your shares are common, not the preferred an investor would get.
So the CURRENT VALUATION of the company needs to be a lot more than $2M, for this to be a sensible risk for you to take.
There are two disasters that can happen to you. The startup could fail and your equity is worth nothing. The startup could be a smash hit success, and you get cheated due to your status as minority shareholder.
So you'd be better off keeping the job that pays $75k more CASH, and investing the difference.
I doubt his idea is that super-brilliant. The fact that he went this far without a technical co-founder shows that he doesn't really value that aspect of the business. You'd be better off saving/investing the extra $75k salary, and then self-angel-investing in your own startup later, where you could be a TRUE co-founder.
Also, as the above people said, a co-founder does not normally draw a salary at the beginning. They are expected to work for equity only, which seems like an idiot move for someone who could get $100k+ CASH as an employee. To give up that much salary, you'd need to be getting half of the equity or even be a controlling shareholder.
So, keep the job that pays $175k, save up the difference, and invest in your own startup someday where you could be a TRUE co-founder.
If your focus is JUST (and only) the tech its not a founder position - its senior executive. Founders are expected to do much more for the company than a senior executive. Founders help in crafting the overall strategy and are expected to do whatever is required by the company (over and above your primary responsibility, which is in tech in your case).
The risk is mostly defined by how stable the company is - is it funded already? how many employees did the company have at the time of joining? what kind of traction has already been gained over the past year? how uncertain is the future of the company in terms of its direction? The length of existence of the company is not much of a factor if there hasn't been any traction in that time period.
In the end it all boils down to what you and the CEO count as fair. A starting point would be to look at the equity portion in the startup school video here - http://startupclass.samaltman.com/courses/lec18/
Hope it helps in some small way.
It's just the two of us. Thanks so much for the link. It really does point me in the right direction.
If the CEO is suggesting vesting for this equity position ask for highly accelerated vesting schedule
Negotiate for protection against dilution if additional rounds of investment are needed. In the end, 8% undiluted might be better than 15% post dilution.
Another strategy that occurred to me is to take the CEO's offer and discipline yourself to take the $25K difference in cash and invest it in small cap stocks. Obviously it won't actually be $25K after taxes but you get the idea. This strategy enables you to diversify your risks. Of course if this start-up is the big hit you are hoping for the return from small cap stocks will pale in comparison to the returns from start-up equity.
Finally, you could ask for something in the middle - how about 10% / 115K
If it is more about the respect and co-founder status than the money itself ... ask yourself what other things communicate co-founder to you?
EDIT to add: Your framing and many of the other answers are mostly in terms of you and what you're "worth". I think you really have to reframe this in terms of what you are worth to the "company" aka the founder.