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How much equity do you give your CTO?

I was wondering what the appropriate amount of equity is to give a CTO.

I am in the early stages of launching This Dog's Life (.co), adiscoveryplatformhighlighting up-and-coming brands while providingdoglovers original local and national content along with curated stories from across the web.

Currently, I oversee five freelance writers and two photographers but need someone to oversee and manage the technical aspect (while I focus on the content/marketing).

I did meet someone that is extremely interested and seems like he would be a great fit. In terms of equity, he is asking for 15-20%, which seems high (read it should be around 3-5%).

That said, he is starting on the ground floor and it would be a standard 4-year vesting schedule. He would help with other aspects (strategy, development, etc.), but it would not be a co-founder role.

Is this reasonable?

Andrea

44 Replies

Aleksandra Czajka
3
0
Aleksandra Czajka Entrepreneur
Freelance Senior Software Engineer, Developer, Web Developer, Programmer - Full Stack
Andrea,

Great question. Can you give a bit more detail as to other compensation for the CTO? Is he going to be getting paid a salary? If not, then 15-20-50% is definitely fair to ask for. If he is going to get a salary as well, then that's another story.

With that said, whatever someone asks for, it all depends on what they bring. If it seems high for you, perhaps you're saying to yourself they are not worth the percentage. If you think they are worth it, then it's simply an agreement between two people. How much are you willing to give to keep him? How much will he bring to the company.

Hope that helps.
Aleks
Roger Smith
1
0
Roger Smith Entrepreneur
Chief Technology Officer at RealtyClub Investment Advisors
Is your company a technology play? Are you paying him in cash as well? How much value do you see him or the CTO role representing in your venture?
Andrea H
0
0
Andrea H Entrepreneur
Special Projects Director
It is pre-funding. So, he requested a small stipend of $500 a month. If we do raise a seed round, he will be compensated a salary too.


Andrea H
1
0
Andrea H Entrepreneur
Special Projects Director
The company will be content plus commerce. So, building up the content side and then rolling out a commerce strategy, including back-end analytics and business intelligence.
Roger Smith
8
0
Roger Smith Entrepreneur
Chief Technology Officer at RealtyClub Investment Advisors
I think his ask is fair if you see this as a technology play and having a CTO with some street cred will help you in raising money or moving this venture forward. So instead of asking how much you think is fair or not ask yourself what you think the value of this role is within your company.
Joe Monastiero
0
0
Joe Monastiero Advisor
CEO, Founder nFlate
Andrea, I have 2 separate opinions on this question. 1st, I was in a slightly similar situation a year and a half ago. I had an idea for a company and needed a CTO partner to help me execute on the idea (data science business). I matched up with a talented former colleague and we agreed to split the company (my idea, his engineering). I've since figured out that this is virtually NEVER a good idea (50/50 splits). Regardless, he never wrote any code in 4 months, we could not fund the paper napkin and we parted ways amicably. I then went to a Startup Weekend, found 3 guys to help me build a concept demo (relatively jr but talented engineers) and we've been together now for a year (we pivoted in August and will release our MVP next month). They worked part-time, I worked full-time. We now have 2 more part-timers on the project. So...I'd suggest that if the CTO you're considering can build your MVP platform by himself (get you to market) or with minimal assistance AND you are personality compatible, then 15-20% is fair (assuming no real engineering has been done to date). An alternative is to find some part-timers as I did (if you do not believe the CTO candidate can build the platform completely) and offer them smaller pieces (that might also add up to 15-20%). The difference for me is I now have a team of 5 or 6 for the approximate price of a CTO and I have 3 different core skillsets included. I believe I was very fortunate to find the core 3 guys all in one Startup Weekend, but I cannot be sure that it does not happen all the time. Lastly, if TTM is critical (not enough cash to bootstrap for too long), then 15-20% might be your only option. You cannot raise outside capital in today's market without MVP and traction. Joe Joe Monastiero (925) 679-5639
Adryenn Ashley
0
0
Adryenn Ashley Entrepreneur • Advisor
Founder at CrowdedTV; #SocialTV Influencer
My CTO is getting 20% but he is critical and the work we are doing heavily code based and in his lap. I think for a traditional website where anyone could step in and take over, it could be less. For me, nobody could do what he can, not even me. I could kinda do it, but it's bleeding edge. To me that warrants a greater share. [image: photo] *Adryenn Ashley* Exec Producer/Founder, Crowded Reality Inc. p:[removed to protect privacy] | e:[removed to protect privacy] | w:http://crowdedreality.com
Tim Kilroy
7
0
Tim Kilroy Entrepreneur • Advisor
Analytics - LTV - Boosting Profits - Digital Marketing
Hey Andrea - The amount of equity that you give him depends on him & you. How much do you value him? How much can he do that you can't without him. You state that this isn't a "co-founder" role, but it is "ground floor". I think you want to share equity generously with the "ground floor" team (and I am not sure what a "co-founder role is, honestly, once you have "founded" a company, you and everybody else are on the same team - I think we fetishize the role of "founder" and "co-founder" a little too much - a great team member can bring MUCH more value than a founder (and honestly, they often do).

Pay your CTO what you think they are worth...if they make your company 3x as successful as it would be without them, what would that be worth to you? 10x? 100X? Are they taking equity in lieu of pay? Think of the cash and equity as levers that you can pull - more cash means less equity, more equity means less cash - but you have to respect that people need to live. This CTO may be worth more to you than he might be to someone else - does he feel like a partner who should receive recompense in the event of your success? Is he a partner who will work for the company's best interest (even when different than his own?). The amount of equity that you share is related to his worth to your organization - when it comes down to early stage team, there is no market comp - there is a market of 1 - one company one candidate - the rest goes out the window. Answer this question - do you believe that your company will be significantly more successful with him than without him? If so, it is your job (as CEO) to do the right thing for the company (even if it dilutes your equity stake - as CEO, you are a servant of the company...). My take is this: If he is the right person, then make the deal with whatever tools you have available - just be sure to add a 6 month or 12 month cliff in their vesting schedule....
Tom Maiaroto
0
0
Tom Maiaroto Entrepreneur • Advisor
Full Stack Consultant
Depends on quite a bit really. If not an actual co-founder, then yes far less. Like Roger pointed out, if your company is a technology play and/or the amount of cash paid will affect things as well.

It's one thing to "hire" a CTO and another to "co-found" with someone who plays the role of a CTO.

Expectations are very different in these situations, but at the end of the day - there is no hard rule. Deals work in mysterious ways.
Gopi Mattel
1
0
Gopi Mattel Advisor
Director, Chennai Area at The Founder Institute
The CTO ask of 15-20% for a pre-funding pre-product company seems more than fair, particularly since there is no real compensation. At this point, it would actually be a co-founder role. I think they may even deserve more.

if seed-funding has been acquired, then it would be more in the 3-5% Plus salary. After series A funding with product and market traction it would be 1-3%, plus salary.

Other than yourself, this person is going to be the most critical person in realizing the company's idea. So a very strong relationship is going to be critical with this person.

Make sure that the person has high-level management ability as well as low-level coding ability. They are going to have to span a large area of expertise in the beginning stages.
Create a very strong trusted working relationship with a lot of give-and-take so that you can get the best out of the person. They are going to have a lot of control over what exactly gets done at the end of the day.


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