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Salaries for Technical Co-Founders- When to Pay and How Much?

I have been negotiating with a technical co-founder. However, he needs to have a salary to come on board in more than an occasional advisory capacity. How much salaries are others paying to a technical co-founder if they are a seed-stage company (no product yet)? Do you pay the salary for the co-founder only if they are performing the technical work? For example, this person wants to manage other technical staff. So I would need to raise enough funds to pay at least one technical staff or contractorplus the co-founder. (Or skip the co-founder and just hire several lower level technical staff.)

Or do you only make co-founder agreements for equity only and not salary?

If you are paying a technical co-founder prior to having a product/revenue- how did you raise funding?

What would be an upper limit on technical co-founder salary (considering that the founder is not drawing any salary, is currently funding the company, and the company is a year or so out from revenue).

39 Replies

Marc DeWalle
16
4
Marc DeWalle Entrepreneur
Entrepreneurial MBA with extensive experience in development and management of sales channels, partnerships and alliance
I would not offer both. Either you become a co-founder and get a decent amount of equity, OR you're employed and get paid. The "pay" for a co-founder comes later. If you give pay and equity, the new co-founder is not taking any risk. Can't have the cake and eat it to!
Ryan Rich
2
3
Ryan Rich Entrepreneur
Developer at Global Thinking
It'll be hard to convince me that you should be paying a co-founder a salary. One of the major consequences of being a co-founder is that you're surrendering a salary for a major split in equity. If this person really wants to work with you but needs a salary then offer them a job, not a co-founder position. Getting the money to do so will come in the form of seed funding. Depending on where you live this shouldn't be too difficult. Go to networking events and apply to a few reputable accelerators.
Brent Goldstein
3
1
Brent Goldstein Entrepreneur • Advisor
Bold, Multi-Disciplined Software Engineering Leader - I’ll transform your organization and deliver the products you need
Similar to Marc's response. -- Being a founder really means being invested in the growth of the company, typically with an equity structure. This may not fix with this person's financial needs, but getting paid means being an employee, not a founder, at least at the early stages where there is no revenue or revenue should be invested in growth.

-Brent
Jonathan Barronville
1
1
Jonathan Barronville Entrepreneur
Software Engineer at npm, Inc.
@ Ben Unsworth: LOL.

=========================

I'm no authority on the topic, but Marc said it best. If you don't even have a product yet, you should BY NO MEANS be paying a "technical co-founder". To quote Marc "Can't have the cake and eat it to!" ... couldn't have said it better.
Karl Falconer
18
1
Karl Falconer Entrepreneur
Founder / CTO at DropStream
Hi Candice,

I think the simplest thing to do is to ask this person what they want. Equity and/or salary. Generally the founders are the lowest paid employees on a company. Maybe 1/3 of market rate for a founder vs employee.

This was a red flag for me:

>For example, this person wants to manage other technical staff.

If this person can not build and ship a product themselves, they are of no use to your business in its current stage. Maybe a better role for this potential CTO is to help you find a contractor who will actually build your product, then if things move in the right direction (revenue, funding, etc.) you can hire them on.

I think one of the worst things a new company can do is to hire someone who's primary role is to manage other people.

Karl
Joe Mellin
5
1
Joe Mellin Entrepreneur
View My Learnings
A person isn't "technical" unless they are actually building something and creating value.

Managing devs is just something you learn with experience. Spend $1k on 3 different projects with 3 different contractors on odesk and you will be functional in it within a month.

And a cofounder doesn't get paid until you get a salary as well.

I am happy to help advise you for an hour on getting your MVP specked out and ready to build.

Skype id: nReduce
Greg Pasquariello
18
0
Greg Pasquariello Entrepreneur
Principle Developer at BiggerMind Software
In my opinion, if you're not raising money to pay salaries for founders and initial employees, then you're not raising enough money for your business. How much depends on your circumstances. For example, a young guy, with no family and a killer idea might be able to work for very little, but a seasoned CTO with a strong background might require much more; and he's going to provide the push the company needs, experience you'll lose out on if you can't pay him. I've seen a number of businesses shoot themselves in the foot with the whole "you work only for equity" argument. If the business is worth investing in, it's worth raising the money to pay the principals.
Britt Myers
2
0
Britt Myers Entrepreneur
Chief Product Officer at HomerLearning, Inc.
I agree with most said here. However I would consider a significantly reduced equity share in exchange for the needed salary (assuming you can afford it). In this case I would offer 1-5% equity depending on whether the salary is below market rates and how much of a star this person is. It's not a bad thing to save some cash short term and attract valuable talent to show off in your funding pitches. You just need to be smart about it and not give too much away. As most have said here, this person cannot have his/her cake and eat it too.
Luke Szyrmer
1
0
Luke Szyrmer Entrepreneur • Advisor
Forward-Thinking, Creative Software Product Manager and Author
I guess it depends on your definition of founder. I would think that a founder puts money into the company, in return for equity, whereas an employee takes a salary. If you are pre-product, and your CTO can't or doesn't want to make the product themselves and is already asking for a salary, it doesn't seem like they're cut out to be an entrepreneur.

As Greg mentioned, you do have the option of going for outside investment. I think it depends on what you're trying to do. These days for most tech & software products you should be able to get an MVP together without any significant money. If you need to go for money, it might look like you don't really know what you're doing or you don't believe in your product very much. It's not like the 90s where you needed a few million to get something off the ground. If you're doing something else, well then it depends. :)
Bill Snapper
0
0
Bill Snapper Entrepreneur
Owner Principal at SammyCO, LLC
Candice, you don't need a manager let alone pay one at this stage of the game. IF that manager is a technical developer / architect that is going to go "all in" then maybe you could see your way to some stipend and equity. Otherwise you need to go find the technical person that can do what you need and wants to be a technical co-founder. A co-founder manager is not needed in my opinion unless it's their idea / company.
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