
Ask HN: What % equity should I give to CTO? - threesevens
Background: I&#x27;m a non-technical founder that has contracted a B2B SaaS MVP.<p>Now I&#x27;ve started getting clients that are interested in purchasing, and will need to start making improvements.<p>What should I give equity wise to CTO&#x2F;1st engineer hire coming on? This is still part-time.
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DeusExMachina
So far I see everyone here tell you to give 50% or more to the CTO. Which is
hardly surprising since you are on a website for technical people.

But even if I am a developer myself, I disagree.

There is a tendency on HN to consider the technical people in a company as the
ones that contribute the most. In my opinion, that is often not the case.

In fact, someone even called you "the idea guy", as if all you did is having
the idea.

I think that, as others have pointed out, the sensible approach is to split
equity based on the value brought to the company. But value does not equal
necessary effort, time spent or "tangible" output in the form of code.

While a CTO might spend a lot of time building "tangible" assets which are
definitely important, that is not the only value brought to this company.
There are assets other than code.

You went through the process and the risks of validating the product and bring
in the first customers. Those are assets too and are what makes the business
exist in the first place. Without those, all the code a technical person can
produce is worthless.

So I would say you should consider the value this CTO will bring to the
company and compare it to the value you already brought yourself and will
bring in the future.

All in all, though I think that proposing anything from 50% up for the CTO
like others are doing in this thread is not reasonable.

Also consider that with an even split, it will be hard to take a decision when
you disagree with each other. Someone must be able to have a final say on each
matter. Since I doubt you want that person to be the new one you will bring
in, I would say that their share should be from 49% down.

Finally, it's not in your question, but do you need a technical founder? You
might, so you are the only one that can answer this. But also consider that,
since you have clients that will bring in revenue, you can just use that
revenue to hire someone on a contract basis first and on a stable basis later,
without slitting the equity.

~~~
slackingoff2017
It really depends on the company. If your product is software then the CTO is
in charge of your entire company minus ancillary functions and should
definitely get a ton of equity.

If your startup sells shoes or something the CTO isn't nearly as important.

~~~
jsjohnst
Even if your product is software, it doesn't matter at all if nobody knows
about it and/or buys it. How do people learn about a product? Marketing teams.
How do people buy a product? Sales teams. Neither of which report to a CTO
customarily.

As someone who has been a VP of Eng and/or CTO in multiple startups, I'd love
_+_ to say my value was the most important, but the truth is that simply isn't
correct. It's a team effort and everyone has to be putting in effort to
succeed.

 _+_ \- actually, I wouldn't, but you get my point hopefully ;)

~~~
slackingoff2017
Eh, I don't buy it :). Every company has sales, accounting, marketing. The
thing that makes a software company special is their technology.

~~~
meric
I suppose the task at hand is then to differentiate between whether it is a
software company or a company using software.

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meritt
> It's actually in a really good place, tech and build wise.

> CTO will come on to make updates to the product and make it even better/fix
> bugs.

Let's be realistic here. Based on the statements you've made, it's very clear
you're not looking for a CTO nor are you looking for a partner. You're just
looking for a programmer. So my suggestion is you cut with the bullshit and
just hire/contract someone, and don't give up any equity.

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BjoernKW
Someone's building a commercial product for you for free? Before reserving any
equity for a potential CTO (who really sounds more like the developer who's
supposed to finish your product) you should consider compensating them for
their work first.

If you and your future CTO will be equal partners with equal responsibilities
the remaining equity should be split in half.

"Non-technical founder" often translates to "the idea guy". This might or
might not be the case here but you should definitely ask yourself what you'll
be bringing to the table before bringing a partner into the game. If he or she
will do most of the work while your contribution mostly is the original
product idea that's a recipe for trouble once business doesn't run as smoothly
as you wish (which it inevitably will at some point).

~~~
threesevens
It was a good friend of mine that was 50/50 partner, but ended up choosing to
work on another project instead. I was left with 80% of an MVP, so I hired a
contractor out of pocket to finish up.

I'm a VP of Sales at a startup, and have done the design, product fit, and
selling. Literally everything aside from coding.

~~~
chasing
> ...MVP made for free from friends/contractor.

> ...I hired a contractor out of pocket to finish up.

?

Also, if your friend gave you 80% of an MVP without any compensation, watch
out: You might not actually own that 80% of an MVP.

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rch
[http://avc.com/2011/04/how-to-allocate-founder-and-
employee-...](http://avc.com/2011/04/how-to-allocate-founder-and-employee-
equity/)

 _Fairness, and the perception of fairness, is much more valuable than owning
a large stake._

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iforgotmypass
I'm a development team lead / senior engineer who's sometimes assuming the
role of CTO for young companies. From my experience, the best way to approach
this is: * Express the work required in money (as you would with any
contractor - determine the market value of the work involved) * Multiply this
value a few times (coefficient more or less is a subjective evaluation of the
risks not succeeding) * Calculate the possible profits after 1-2 years of
running business (how much of that money you will be able or willing to pay
out in dividends?) * Equity share should be as big as to allow receiving the
amount of money obtained in the second step

For example - let's assume that building your MVP and maintaining it for 6
months until you're able to cover maintenance and improvement costs, would
cost you around 30 000 $. Then let's multiply it by 3 or 4 and get around 100
000 $. Let's say you're certain that you will be able to pay out 500 000 $ in
dividends in the second year. That amounts to about 20% equity share.

Also, it would be very good to give cash as well. Depending on the amount of
the equity share - 20-50% of the market value for the job involved.

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_RPM
Reminds me of the people who reach out to me about building their product, and
want to give me 10 percent of their "company" to build their entire product
from scratch.

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Blackstone4
Will you be paying the CTO a market wage? You get what you pay for whether
that's in equity or cash. If you're looking for the CTO or engineer to work
for no salary, I would think in terms of bringing them on as a co-founder with
40%-50% equity.

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IncRnd
Why do you believe that you need a CTO? Your post, while short, seems like
what you really need is a programmer or two.

Presumably, someone wrote the program which you have been contracted to
provide to customers? Why can't you go to the original party who wrote the
program? Is "contracted" the correct word in your case? That would mean that
you have already entered into a written contract to provide something to
customers.

Or, are you saying that you entered into a contract to purchase a program, you
showed the program to some people, they want some changes, and you need
someone to change the program?

~~~
threesevens
I do need a programmer, but I would like someone that also takes
accountability and ownership of the business. Eventually they'd grow into a
CTO role.

I wanted a product made for my own use case, so I paid someone to make it. Now
I'm showing people, and there are minor changes they'd want.

~~~
IncRnd
That makes sense. I really hope that takes off for you.

Regarding a CTO, though, maybe a business manager would work for you. That
certainly sounds cheaper to me, and you'd still control the product direction
if desired.

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chasing
> ...MVP made for free from friends/contractor.

> I currently own 100%...

This is not a reassuring combination of facts. You should start by giving the
people who built your product some compensation.

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ugh123
What sort of value are you gaining from the MVP? Can you make money now from
it? Is there substantial market learnings to be gained from it (outside
friends and family usage?). If not any of the above then you'll need a CTO who
can build a production-ready service. Personally, i've seen some pretty shitty
MVPs and would probably build from scratch.

Start at 50/50\. Its on you to justify more for yourself.

~~~
threesevens
Yes, I should be able to sign on at least 10 paying customers ($500-5000 in
MRR). It's actually in a really good place, tech and build wise.

~~~
owebmaster
If you can get the customers to pay before get a CTO, you can give him 10-20%
and a good salary. If not, at least 50% and you will have a hard time
convincing someone good enough to help you achieve success.

~~~
threesevens
That's what I was thinking. I won't be able to afford a "good salary" for a
while, and it's still part-time only. I was thinking ~15% and then salary once
we're there.

~~~
brianwawok
Why would someone code for 15% of currently nothing vs go consult for 150
bucks an hour?

Could a developer do your job plus his own and thus own 100% of the business?
Some developers can sell too.

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jwilliams
Every situation is nuanced. So this is pretty generic advice. But if this is a
true partner that you're going there distance with, then go 50/50\. There may
be some starting point difference now, but it's a long haul. Having someone as
committed as you makes a big difference.

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the_gastropod
Here's a pretty good blog post / tool for figuring this out:
[http://blog.gust.com/cofounder-equity-split-framework-
object...](http://blog.gust.com/cofounder-equity-split-framework-objectively-
divide-equity/)

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aries1980
Have you considered Mike Moyer's method, described in the Slicing Pie?
[http://slicingpie.com/](http://slicingpie.com/) It is pretty fair and adjusts
over the time based on the delivered values.

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moomin
So the CTO will be the one actually determining if it's a success? Upwards of
51%.

~~~
threesevens
No, I'll be the one performing web demos and selling customers. I've gotten
pretty far with product market fit, now it's figuring out marketing and
selling.

CTO will come on to make updates to the product and make it even better/fix
bugs.

~~~
hpagey
How many paying customers do you have?

~~~
threesevens
Currently none, but 15 beta testers that will either convert to paying
customers or cancel < 30 days.

~~~
hpagey
Alright, IMHO, you don't have a product market fit. For a B2B product, you
need at least 10 paying customers before you can declare some sort of product
market fit.

You won't have a "real" product market fit until you have 20 "solid"
customers. "Solid" customers are less likely to churn and use your product on
a regular basis. It always takes longer for the deals to close and the money
to hit about bank accounts. Of course this depends on your deal size too.

As far as equity is concerned if you want a co founding CTO you need to part
with at least 20%. The CTO should feel invested enough. With low equity,
he/she is more likely to leave you on first signs of trouble or slow down.

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segmondy
How much can you pay? There's a formula. If you can pay market value 0%. If
less enough to make up for you are not paying based on current and projected
cost of the company in 4 yrs assuming a 4 yrs vesting cliff.

