Am I getting a good equity deal?

AAnonymous ·October 22, 2014 ·10 answers

I have been invited by a friend to join his start-up. Currently the business just consists of him, the idea and a prototype that is probably 10-20% complete. He doesn’t currently have a logo and is working on it in the evenings.

He wants to remain CEO whilst I join him as COO. He then wants to hire a technical genius to be the CTO.

He has not asked anyone else to be COO or get involved in the running of the start-up.

He has moderate technical experience but is definitely up to standard in getting stuff done in the technical department but not as good to do it all himself.

He wants to get me on board to find this great CTO and get the business side of things sorted (which I know I can). I have a propensity to get things going from idea to reality, I also have a background in finance.

In essence, I would be focusing on the business side whilst the CEO and CTO would be focusing on the product/ technical side.

I do have technical experience although it would not be of huge value with their experience being far greater and my value lying elsewhere.

I really want to work with the CEO and he is a truely inspiring guy but at the same time I do not want to get an unfair deal considering the current development of the business.

He has suggested an equity split of CEO 45% COO 20% CTO 35% – all of which are dilutable. What do people think of this percentage? If it’s unfair what percentage should I be going for and why?

10 answers from the community

AAnonymous· Oct 22, 2014

You are basically coming in at ground zero... 10-20% complete and an idea isn't worth much. It would benefit you and the company to have more skin in the game. I would acknowledge his importance to the starting of the process and counter offer a 40/30/30 split. If you are successful, it will be as much about you as it is the yet to be found CTO. With such a wide separation of equity, there will be animosity towards each other as things get really good (or really bad) and the stakes increase.

AAnonymous· Oct 22, 2014

Based solely off of your post, and question, it seems like a fair and actually generous equity split / suggestion on the CEO's part, and would indicate that A) they might actually know what they're doing, and B) they're not greedy... getting started themselves (the CEO) with a non-controlling interest in the company (45%).

Go to this website, http://foundrs.com, and check the boxes - honestly. I did it in 2 minutes based off your question and background, and future contributions, and the equity split analysis came out to the following:

CEO: 48%, CTO: 34%, & COO: 17% - pretty much on par!?

Now this of course is just fuzzy math and a lighthearted calculation, and there's obviously more to the story, but I would say this offer, and for where the "company" or the idea is right now, in its current state, is fair-market.

Ddana· Oct 22, 2014

AAnonymous· Oct 24, 2014

+1 totally agree. Quit wringing your hands. You like the guy and the work. Be happy. Make success and heaps of money for the three of you.

AAnonymous· Nov 9, 2014

AAnonymous· Oct 22, 2014

I don't know... Your not going to find a substantially better CTO at the beginning stages of a startup by offering them double the amount of equity as the COO. I think the silicon valley job/startup market skews the foundrs calculator. For all the sweat that goes into making a startup successful, I wouldn't settle for less than 30 especially in a situation like this unless you get more compensation.

AAnonymous· Oct 22, 2014

AAnonymous· Oct 24, 2014

And that makes you the person I would least like to add to my team. This commenter seems content to overvalue him/herself and undervalue the CEO and CTO. While COO's are highly important to achieving success, they're also the most replaceable.

AAnonymous· Oct 28, 2014

I am the CTO, we are not a silicon valley startup. We bootstrapped everything ourselves. 6 years later, yes I've worked my ass off and I know they couldn't replace what I've done. However, this is everyone's life, the CEO and COO both work their ass off too and we couldn't have done it without one another.

Forming your company on the replace-ability of people just seems stupid to me. More likely than not, the 3 person company the OP is envisioning will be doing everything by themselves for the foreseeable future. If they are successful, and he's the COO, he's going to have equity jealousy, plain and simple. He's going to be working just as hard if not harder than the idea guy, maybe the CTO too. I'm answering this as if I'm the OP, assuming he's got a decent gig now, putting your family/lifestyle at risk isn't worth it for 20% given the details above unless he's compensated for the lack of equity.

AAnonymous· Oct 23, 2014

Yeah, also would encourage you to evaluate how you will make money, how you plan to bring on clients and how many products your friend has brought to market that are actually profitable.

I've gone through a couple of these iterations as a CTO, a couple became ok profitable and a couple floundered.

Due to that i have a pretty serious investigation when someone asks me about this type of stuff and will most likely only consult going forward.

The reason is that there is only so much time and gas in your company building tank. Only spend that on ventures that have the proper market and team.

Am I getting a good equity deal?

10 answers from the community

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