

Ask HN: As a CTO for a seed company how much am I worth? - joslin01

In general I would like to know. Here&#x27;s my personal position if you would like to comment on it:<p>I&#x27;ve been working with a business partner on an app. I&#x27;ve decided to come on as CTO, and we&#x27;re now hashing out how much equity &#x2F; salary I should get. Here&#x27;s the facts:<p>- The CEO has been working on it this entire past year. He&#x27;s been iterating over his idea and had a prototype developed.<p>- I&#x27;ve been taking $1500&#x2F;week to freelance for him for the past 3 months under the assumption that I will join on eventually. I&#x27;m worth $4000-$5000&#x2F;week from a freelancing standpoint but took the less pay because I believed in the idea<p>- At my previous startup I was paid 175k + 5% equity. I&#x27;m very high in demand.<p>- I&#x27;m developing an iPhone app and until I get a developer that means I will be doing the backend and Frontend   programming (both of which I&#x27;m skilled and experienced in)<p>- The CEO plans on giving himself 55%. His father who has paid for the freelancers that he&#x27;s hired over the past year will get 20%.<p>- We live and work in NYC<p>- We have a great working relationship. We work in the same office and get along great and are always hashing out ideas.<p>He&#x27;s offered me 8% &#x2F; 125k. I told him I don&#x27;t feel like a cofounder at that amount and asked if 15% &#x2F; 100k was feasible and he didn&#x27;t think so. We talked for length about it and I feel like I&#x27;m worth a lot more than he&#x27;s selling me on.<p>Is it fair that he get so much more equity and am I being unreasonable in expecting more?
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billions
It comes down to traction. If the startup has traction, your risk is reduced
several orders of magnitude compared to a company without. The odds of a
startup gaining traction with demonstrated growth is say, 10,000:1. If a
company has traction & growth, your odds of cashing out improve from 100,000:1
to 10:1. In your situation, if the company has traction, take the 8 percent
and be happy. If traction is expected in the future, you are betting on a
vision. To get to traction the startup will likely need your time, sweat,
ideas to help tweak it. If traction has not been attained yet, you should be
considered a cofounder and get at least the 15% you're asking. How replaceable
are you?

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gregcohn
Try just telling him "no" and see what happens. That sounds flippant but it
will tell you exactly where you stand -- your value in this situation, in part
because you didn't negotiate terms prior to building his prototype -- is
exactly a function of your opportunity cost and his alternate options.

EDIT to add: Your framing and many of the other answers are mostly in terms of
you and what you're "worth". I think you really have to reframe this in terms
of what you are worth to the "company" aka the founder.

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BIackSwan
It depends on the kind of duties you are expected to perform and the risk you
are taking by joining the company at this stage.

If your focus is JUST (and only) the tech its not a founder position - its
senior executive. Founders are expected to do much more for the company than a
senior executive. Founders help in crafting the overall strategy and are
expected to do whatever is required by the company (over and above your
primary responsibility, which is in tech in your case).

The risk is mostly defined by how stable the company is - is it funded
already? how many employees did the company have at the time of joining? what
kind of traction has already been gained over the past year? how uncertain is
the future of the company in terms of its direction? The length of existence
of the company is not much of a factor if there hasn't been any traction in
that time period.

In the end it all boils down to what you and the CEO count as fair. A starting
point would be to look at the equity portion in the startup school video here
-
[http://startupclass.samaltman.com/courses/lec18/](http://startupclass.samaltman.com/courses/lec18/)

Hope it helps in some small way.

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joslin01
It's certainly not JUST and only tech. I weigh in on everything from design to
business to HR. I'm not a CEO, but a large part of my contribution is
certainly business strategy and tactics. I'm decently well-read in starting
start-ups and have started a couple myself. I care a lot about strategy and
it's a lot of what we talk about.

It's just the two of us. Thanks so much for the link. It really does point me
in the right direction.

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mswen
Couple of strategies to consider:

If the CEO is suggesting vesting for this equity position ask for highly
accelerated vesting schedule

Negotiate for protection against dilution if additional rounds of investment
are needed. In the end, 8% undiluted might be better than 15% post dilution.

Another strategy that occurred to me is to take the CEO's offer and discipline
yourself to take the $25K difference in cash and invest it in small cap
stocks. Obviously it won't actually be $25K after taxes but you get the idea.
This strategy enables you to diversify your risks. Of course if this start-up
is the big hit you are hoping for the return from small cap stocks will pale
in comparison to the returns from start-up equity.

Finally, you could ask for something in the middle - how about 10% / 115K

If it is more about the respect and co-founder status than the money itself
... ask yourself what other things communicate co-founder to you?

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kbruner
It sounds like this company is firmly founded (a year old, spending money,
etc), so asking to become a co-founder at this point isn't fair to founder(s).
Seeing as you've also been paid for the work you've done so far this seems
like an amazing generous offer. Also think about what a different candidate
would accept as CTO, which is what must happen should you decline.

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joslin01
No, it's certainly not firmly founded. The business plan has changed within
the past couple months and it's been iterated over a lot. There was a
prototype developed, but it's just given to investors for them to look at and
is very basic / stripped down.

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elmin
Is he looking for a cofounder, or an early employee. For an early employee,
that is a massive amount of equity. The equity is to compensate you for the
risk your taking in joining an early stage company, but you're not taking much
risk, your getting a very reasonable salary, and the company is already over a
year old.

~~~
joslin01
He's looking for a cofounder

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fsk
He's looking for an employee that he can trick into believing he's a
cofounder.

\- unequal equity split

\- business plan was decided before you joined

You would be an employee and not a cofounder.

~~~
joslin01
Thank you I totally agree, and it's been my main concern. I keep telling him
"I don't want to be employee #1. I want to be cofounder"

~~~
fsk
Let's do some arithmetic for you. At 125k/8%, you're giving up $50k salary for
8% equity. At 100k/15%, you're giving up $75k salary for 15% equity.

But it isn't 15%. If it's a typical 4 year vesting, it's only 3.75% per year.
So you're giving up $75k salary for 3.75% equity in the company. That implies
a current valuation of $75k/0.0375 = $2M.

But you are a minority shareholder. You could do a great job, deliver a great
MVP, and then be fired after 11 months with nothing (if it's a typical 1 year
cliff). The founder could give a sweetheart deal to friend investors, diluting
your equity. Your shares are common, not the preferred an investor would get.

So the CURRENT VALUATION of the company needs to be a lot more than $2M, for
this to be a sensible risk for you to take.

There are two disasters that can happen to you. The startup could fail and
your equity is worth nothing. The startup could be a smash hit success, and
you get cheated due to your status as minority shareholder.

So you'd be better off keeping the job that pays $75k more CASH, and investing
the difference.

I doubt his idea is that super-brilliant. The fact that he went this far
without a technical co-founder shows that he doesn't really value that aspect
of the business. You'd be better off saving/investing the extra $75k salary,
and then self-angel-investing in your own startup later, where you could be a
TRUE co-founder.

Also, as the above people said, a co-founder does not normally draw a salary
at the beginning. They are expected to work for equity only, which seems like
an idiot move for someone who could get $100k+ CASH as an employee. To give up
that much salary, you'd need to be getting half of the equity or even be a
controlling shareholder.

So, keep the job that pays $175k, save up the difference, and invest in your
own startup someday where you could be a TRUE co-founder.

~~~
fsk
Another way to look at it is: If this guy pitched to you the idea of investing
$75k cash in his startup for 3.75% in common (not preferred, no liquidation
preference, no voting rights), would you do it, or would you laugh at him?

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petervandijck
Giving himself 55% (and his father 20%) is a red flag. He's not looking for a
co-founder.

