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What amount of equity would you give a CTO at a seed stage?

The question is related to the case of a seed stage startup that already has a working product on the market. This is a tech startup so the technology piece is very important and this person will be critical to the success of the business down the line.

17 Replies

Mohamed Hamza
1
0
Mohamed Hamza Entrepreneur
CEO
Mike I would determine the answer by the roles and duties and previous experience. In my experience this can be tricky. M
Mary Furlong
1
3
Mary Furlong Entrepreneur
CEO at Mary Furlong & Associates, Producer of What's Next Boomer Business Summit, & Silicon Valley Boomer Venture Summit
1 percent Mary Furlong, Ed. D. CEO Mary Furlong & Associates Furlong@aol.com Save the date! June 22, 2016 www.boomerventuresummit.com
Alejandro Cremades
5
0
CoFounder & Executive Chairman at Onevest
Depends on your space and also how far along you are in the life of the company. If you are an engineering driven organization I have seen CTOs receive anywhere between 5 to 10% in stock options with a vesting schedule of 4 years and a 1 year cliff. If you are not then probably between 2% to 5%. It all comes down to how critical this role is for your venture.
Miguel Hidalgo
1
0
Miguel Hidalgo Advisor
Mighty Micro-Multinational Entrepreneur
Mr. Manangan,

Mr. Cremades, in the previous comment, is a great source of information and he wrote a great book, "The Art of Startup Fundraising."

First, a Startup Team is dependent on the scaled short-term needs of a startup. A CTO may enter the picture later on; but if you can gain enough leverage to reduce the percentage of the stock option, you retain more control ("Zero to One," by Peter Thiel).

I have found another way, but it's only an option for your consideration. Configure a dynamic split, but the down-side is whether the CTO is willing to absorb a risk ("Slicing Pie," by Mike Moyer). Most executives, if they did not join the Startup Team will not do it like this.

Therefore, wait until you have scaled beyond the initial stages, have traction (momentum), and have proven customer proliferation (hits and visitors) before negotiating terms and conditions with expensive help.

Alejandro Cremades
1
0
CoFounder & Executive Chairman at Onevest
Miguel Hidalgoreally appreciate the kind words :)
Leesa Soulodre
0
0
Leesa Soulodre Entrepreneur
Managing Partner, Chief Reputation Risk Officer, Innovation Advisor & Digital Director
Read Slicing the pie! www.slicingthepie.com
Jamshed Dubash
1
0
Jamshed Dubash Entrepreneur • Advisor
CEO - Vaspar Strategies
Mike,

The answer is - it depends... I would want to make sure this person is adequately motivated as it sounds like you believe this to be a critical role in your company. Since this is seed but you have traction - I would think in the 5+ range sounds like the right area. Keep in mind there will be significant dilution thru multiple rounds of funding. I am a big believer in - i'd rather have a smaller piece of a bigger pie rather than a big piece of no pie... Good luck.

Jamshed
Michael Lipson
1
0
Michael Lipson Entrepreneur
Executive Coach & Strategic Consultant
There's a lot of good comment which I agree with. Also, remember more equity w/less salary ad vice versa. if there's $0 than you'll need to go above what's been stated to get a "player." You might also consider getting creative and issuing equity awards/incentives for key milestones (on top of the typical 4 yr vest, 1 yr cliff) if the milestones can be explicitly defined and will make sense over the longer term.
Terrance Boult
2
0
Terrance Boult Entrepreneur
El Pomar Prof of Innovation and Security at U. Colorado at Colorado Springs
The answer depends very heavily on what is their salary and the expected scale of the role, and if you are talking % with or without dilution protection, the competitive ness of our market (NYC is a hot market for CTOs) and very much depends on your marketsize/projections -- 5% of an app company with $100,000 potential would not be worth a week of effort, 5% of a million dollar company is not much of an incentive, 5% of a 100,000,000 operation is a very good incentive.

You say they product already exists, but nothing about the size of the customer base and stability of the product. if its an MVP that was slapped together and is getting initial customer feedback, that so is the CTO is going to have rearchitect it for scaling, lead a proper (agile) implementation and also help in fund raising, then expect 100-200K (depending on the complexity of the product and your location and size of the Engineering group) + 5-10% vesting as Mr. Cremades, suggested. If you are talking equity only and need that level of work it will be much higher percentage. If the product is solid with a large base and little/no need for refinements, and the CTO is mostly for the next product, then percentage would be lower, maybe 2-3%.


You need to look at it compared to what a good CTO can make and design a meaningful total package. Of course, you can always find unqualified people for less and there will likely bebe business folks that will suggest you keep it the CTO's role small. You might find some qualified folks for less, but if the incentive is small they are very likely to leave when things don't go very well. I've mentored a couple of companies that went the low-incentive route and lost or where having struggling to keep their CTOs. The cost of restarting with a new CTO is much much higher.
Mary Furlong
1
0
Mary Furlong Entrepreneur
CEO at Mary Furlong & Associates, Producer of What's Next Boomer Business Summit, & Silicon Valley Boomer Venture Summit
That could work too With a great CTO Mary Furlong, Ed. D. CEO Mary Furlong & Associates Furlong@aol.com Save the date! June 22, 2016 www.boomerventuresummit.com
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