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Chief Technology Officer/Architect - Does it take salary and equity?

I recently lost a wizardly CTO/architect when, after hours of Skype over the period of a month, he laid it on the line and shared that I would need to cover the full costs of developing the app and offer equity. Ultimately, I understand his position (he's in high demand; has family obligations; etc.), but I was really deflated. I have just consulted with another, very successful software entrepreneur, and he affirms I'll need to pay a reasonable salary and offer equity IF I want to attract a first class architect and incentivize him or her to stay with me. I'd appreciate the advice and experience of others in the software startup space. I'm especially interested in hearing from successful entrepreneurs who have faced and overcome the challenges of securing the technical expertise necessary to hit a home run. Thanks in advance, all.


50 Replies

Mike Whitfield
3
2
Mike Whitfield Entrepreneur
Sr. Software Engineer, EPAM, Google
Software people are propositioned all the time. It's crazy. I'm experiencing it's different than being an executive which has a different flavor of putting people off.

Software people know they build the core equity that makes a company valuable so it's a terrible motivator. Software people struggle to get their work recognized in the market, so dollars are closer to a reward pattern for them. You could pay your software person a good salary with a chance of equity down the road as recognition for contributions and this would suffice.

EDIT: their alternative is to goto a bigger brand with more security/hopefully less stress and the easier to exit to that right opportunity with more cash in the bank.
Eleanor Carman
2
1
Eleanor Carman Entrepreneur • Advisor
Incoming BLP Sales Associate at LinkedIn
There are actually tons of discussions on FD about this very topic! It's really helpful to do a search before posting something new - especially one of such importance as this one. Here are a few previous posts.

http://members.founderdating.com/discuss/637/Salaries-for-Technical-Co-Founders-When-to-Pay-and-How-Much
William Gleim
6
0
William Gleim Entrepreneur • Advisor
Co-Founder, Technical Lead at Coinalytics
Yes.
David Bergman
2
0
David Bergman Entrepreneur
CTO, Co-Founder of Stackray, Inc.
I don't think that is true; i.e., I think one can also make that tech partner a (not so late) co-founder. That means inviting to some 30% of the company. That way, you can work together -- perhaps half time -- for a common goal to raise money for a "real service."
Tom Maiaroto
3
0
Tom Maiaroto Entrepreneur • Advisor
Full Stack Consultant
Yes you will. However, you can get sound advice for free (or on a tight budget) quite often. I often help many people with free advice or paid consulting and simply help them find developers for the execution part. That way things fit in their budget. Pretty much always in my experience, no matter what their budget is.

The problem is equity has been too freely thrown around to the point that it's almost worthless these days. It'll depend on the stage and size of the company of course. Every situation is different of course.

Reuven Granot
3
1
Reuven Granot Entrepreneur • Advisor
Corporate Strategic and Scientific Officer at Perlis Ltd
Alison, if you pay a salary than your CTO may expect only ESOP. It includes only options and no more than 1%. If you do not pay a salary, than you just have a partner. If your CTO must work for his living, he or she can only be partners on a part time job and work for you after their usual working hours.

If you can pay salary, this is the best option for you, assuming you really believe in your success.
Linda Marshall-Smith
2
0
Linda Marshall-Smith Entrepreneur
Marketing Consultant, Ambassador, Silicon Beach at CoFoundersLab
Without knowing all that much about your situation, do you have a working MVP? Do you have traction on it? It is easier to attract a developer when you can show that you already have something people want.

If you don't have an MVP and were looking for a founding developer to build it for you, that scenario typically works when both the developer and the business person (or inventor) already have a standing relationship, and they both trust each other -- Jobs and Wazniak. Hewlet and Packard, etc. The college chums from Facebook and Google.

If you don't have that standing relationship with a tech type, you can always scale down your idea to it's minimum (as in minimum viable product or MVP) and hire someone to build you the basics. If you can afford to pay them their rate, you won't even have to part with any equity. Just make sure that legally, you own what they build for you.

Now, you can test your idea, get traction and once you're secure in knowing you have an idea that people want, then start pitching developers/architects to fully build out the product.

FYI I recommend a good new book on the market in developing and nurturing partnerships:

Business Partnership Essentials: A Step-by-Step Action Plan For Succeeding In Business With a Partner

Good luck.
Steve Owens
3
8
Steve Owens Entrepreneur • Advisor
Finish Line - A Better Way for Small Companies to Develop Products
You almost certainly can outsource this for a lot less and not have to give up any equity. It is likely the outsource engineers will be more capable than anyone that would be attracted to a startup.
Rob Gropper
4
0
Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
plenty of threads on this already, but the short answer is, yes, it takes money (salary and likely some equity too). It's not impossible to get the job done on equity alone, but if you want a more predictable result then plan to pay in the form of cash and equity. It's a supply and demand issue. Your story has to be overwhelmingly compelling to satisfy the risk/reward curve of the type of technical help you want. But like most projects you have 3 variables you can adjust: time, money, scope. consider the tradeoffs of modifying each of these until you find a blend that works. Plenty of $$ is no guarantee you will end up with the right person so hedge your bets accordingly. If you haven't built even an MVP yet, let alone a rev 1 product then i would question whether you really need a "CTO/architect". If you are willing and able to roll up your sleeves and do most of the upfront design, business logic and architecture work yourself and if you can manage a development project then your options increase dramatically AND you will learn a LOT about what you really need to build AND reduce costly pivots. At the opposite end of the spectrum (from hiring a CTO/architect) is you developing detailed specs and managing a small team of offshore developers. This has it's own challenges and tradeoffs. As the CEO of a technology company you will be much better off getting your hands dirty up to your elbows (or perhaps eyeballs) in the details anyway so better to get dirty sooner rather than later. The $$ burn rate will be lower, but time and scope will need to be adjusted.
Aleksandra Czajka
12
2
Aleksandra Czajka Entrepreneur
Freelance Senior Software Engineer, Developer, Web Developer, Programmer - Full Stack
Allison,

I run into these questions every day being a freelance Senior Software Engineer. I get 20 start-ups a day asking me to join for equity, which, 99.9 out of 100 times will mean that I'm doing the work for free. Why do they do this? Is it because it's the best thing for the business to hire someone for free? Is it because it tests the technical person's character and makes sure they're the right person for the job? No. They do this because they don't have the money. Is it the right thing to do for the business? Absolutely not.

The best thing for the success of the business is to make sure you have the right team. Will you need to pay them, very possibly so. Is it scary because you will have to invest some money? Oh yeah. But, if you're not willing to do this, to me, as a person that would join your company on trust, it tells me that you don't believe in your concept. It tells me that you want to get into your business bearing as little risk as possible. And, if that's the case, why would I take a huge risk, devote my development time, which I can get paid top dollar for, just to put my faith in someone that doesn't believe in their own concept. Because, if they did, they would pay the top dollar for me.

Tell me this, have you yourself ever considered working on someone else's project, giving your expert advice, to someone you met a month ago, for entirely free?

I truly wish you luck on your project and hope any of my thinking is useful.

Best,
Aleks
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