Advice for negotiating better terms for a possible CEO/President offer.

(I've been on the hiring side of CEOs for troubled companies). Just a few thoughts... 

Leena-

Leena,

Reuven - as others have said, if equity vests after only a year and the main focus is simply raising cash, then by all means sign me up as well!

Leena; you have a lot of ground to cover and i think you are on the right path. No hard and fast rules, but if someone i'm considering hiring doesn't start grilling the s@*t out of me fairly early in the process then flags start to go up, especially if this is key position like a CEO. I want to know how you think and how you think is best reflected not in what you say, but in the questions you ask and how you listen. Your history is also paramount. One very key character trait one needs in a CEO is negotiation skills. Whether you are negotiating an offer to a key hire or negotiating the terms of a sales agreement or negotiating financing terms i want to experience how you negotiate. I second Michael B's focus on product / market fit. Do they have a finished product? why is it not yet generating revenue? Consumer or B2B? You mention the "current leader", but you i didn't catch if s/he is a founder or a hired gun - i assume founder. If that's the case, the fact that he's got a full time gig at another startup raises giant red flags for me. it tells me that the person with the most tribal knowledge of and passion for the business has lost interest. Now it could be that he's in over his head and running/growing the business isn't his forte and he was lured away to leverage his real skills - that's the only scenario i can think of that would somewhat lower the flags. That being said this reinforces the fact that there's a ton of heavy lifting to do and the new leader is taking big risks and with big risks come big rewards. from the hip i'd say 30% is a pretty reasonable figure. Investors are going to want to see that you still have skin in the vesting game out into their future so even if you and the current "leader" agree to a 2 year vesting schedule, don't be surprised if investors want to change that before they write checks. If i'm wearing the founder's shoes (i'm assuming the person you are dealing with is the founder) i'm thinking that with no ability to pay a salary to you or anyone else (it's an assumption on my part that no one is getting paid) and i'm 100% committed to another company that 70% of something is worth a lot more than 85-90% of nothing. I'm thinking that 30% over 4 years with monthly vesting and a 30-90 day cliff is where i expect to end up and i want to see how you convince me of that. I'd play it as if he wants you to convince him to double his offer (easy for me to say :- ). i would also focus closely on his future involvement and what his expectations are and how you can manager that (for better and for worse). If he continues as majority share holder you want some clear ground rules on decision making, etc. What does the board look like currently? Presumably he is the current board. You should have a board seat and there should be a third independent director you two agree on to help break ties. Loads of other questions, but product / market fit, decision making and compensation are good places to start. I would put these ahead of all your other questions except #26: clearly this company is NOT his #1 priority - why is that? that's question #1. 

Oops, tried to edit this post, could not. I meant they are offering 4 years vesting with a 1 year cliff, while I want 25-30% vesting over 2 years with a 6 month cliff.

Wow, 20% vesting in a year just to raise seed? Where can I sign up?!  :)

Thanks for this information, Reuven. I am having doubts, too, but have yet to meet with the CEO. All talks have been on email for now and I will start discussing with him on the phone soon, then Skype, then an in-person meeting with him and his unwieldily large team, as that is how I'm comfortable doing such business. He is open about where his business has gone down, so this much transparency is actually a good sign, and he seems amenable to improving the equity percentage -- not that that may mean much if the company's not worth anything.

So how did that work...did you make the 20% contingent on your guy raising the funds? Sorry if that's a stupid question. I mean, he did put in some work at least. Did he walk away with nothing after a full year? And why do you say it was unreasonable to raise an amount of capital to pay the team? Isn't that what is needed?

Hi Chris and thank you. I guess I need to face the unpleasant fact that I will continue to dilute along with the company as we go through raises. Thankfully, I'm a hard negotiator when it comes to raising (or spending) money, so maybe I'll be able to navigate this ship so that everyone involved can retain as much as possible in the end. However, no matter what my percentage is, if the company is only "worth" 3.5 mil now, and, say, is worth only $10mm at Year 5 (as pro formas have conservatively predicted), I'm not really going to cash out with much (for the risk I take and the time I give). In my 20s I would have jumped at this, but I'm in my mid 30s with a huge ass b-school loan to pay off. I could easily be making $160k now at a real job and would maybe end up with as much money as one of these "CEO offers" 5 years from now....

I live in Israel and my start-up is a solution for elderly aging at home. This market is only starting to develop. We are successful to raise attention but at the end investors are still afraid to invest in this market. So, the CEO after one full year of hard work and close collaboration with me decided to give up. She walked away with nothing, even I would leave her some equity for her hard work. The CEO thought all the way that if a founder leaves, should not take with her equity in order not to be in an extreme situation, that people left with equity and we had not enough to give the new comers.