Vesting Schedule · Vesting

Bringing on a Senior Developer at the very begin of a Start-up with almost no liquidity?

Gabriel KLEIN

April 19th, 2015

I would like to bring on board a Senior Developer, but I cannot afford his/her salary (or at least not completely).
I was thinking to offer a mix of a vesting + minimum paycheck with a 2 years cliff type of deal.
What could be the math that would define the percentage over the years or months?
Is there a better way to bring him/her on board?

Stephen Cataldo

April 19th, 2015

Some questions first: are they a Silicon-Valley oriented developer looking to join a startup? Are they more excited to win big, or more nervous about risks?  Unless they're really excited by the prevalent venture-capital model, I second Slicing Pie... which means that you have to have an open conversation about what the company is already worth and what the risks are. Get good at explaining what the value you bring is, without ever mentioning the idea as an asset.  Set vests and cliffs logically rather than by year, and consider applying them to yourself in a similar fashion -- they are taking on risks of founding, with you making all the decisions. This is especially true if your plan is along the lines of "tech founder builds a prototype (first), non-tech spends an unknown amount of time getting funding or traction with that prototype" which could leave them doing all the work before you do, and then being required to hang around before you prove yourself -- and building the prototype is better than "1 year" for vests or cliffs.  Have an open conversation about what you think the company is worth. They're income is going to be dependent on you. It's really easy to scare away technical co-founders (and it should be, it's usually a bad deal to be a junior partner where the other person feels like it's their baby). How do you -- both in reality, and in the conversation -- make it clear how risk, communication and power will be distributed, and that they will be rewarded proportional to risk in the same way you are? As a tech contractor who sometimes works for founders, it's hard to wear the "hard personal questions about the founder's ego" hat, and my "interviewing for a job" hat at the same time. I ask questions about what the founder thinks they've already contributed to the company (if they don't have investor's money) and think it's a good idea to walk if they're pitching developers to help them build their startup before even figuring out equity. I get nervous asking about things like "what happens if get into an argument" with someone I've just met, but if the power dynamics tell me that I'm signing up for 4 years with an overlord who makes all the decisions that impact my life, I'm not interested ... and that's really often the deal that founders hand out without realizing it. If you can't pay cash, it's not all your dream anymore. Bring up, talk about, how power and cooperation will work. It's different problems than with investors.

Michael Barnathan

April 19th, 2015

1 year cliff, 4 year vest is standard. You may have to give away significantly more than 10% if your startup is very early stage and that person will be building the MVP. Less if you're later and can show some revenue.

Cash and equity aren't valued 1:1 - given a sliding scale, it almost always makes sense to go all cash. Usually equity is worth significantly less due to the risk and the vesting restrictions. Sometimes the growth potential offsets it, but for someone to believe that, you have to have everything lined up and have a compelling market size and growth rate.

Eliav Cohen Investor and Founder

April 19th, 2015

A one year cliff is sufficient and 2500 a month salary.  I would negotiate money vs. Options on a sliding scale. $0  to 2500 per month and 2 to 10 percent.  

David Schreiber Founder

April 19th, 2015

The expected return of equity to non-founders is fairly close to zero in all circumstances, so exchanging salary for non-founder equity almost never makes sense for an employee. It sounds like what you're looking for is a co-founder.

But then I have to ask: your profile indicates you're technical. Why aren't you building the MVP?

David Schwartz Multi-Platform (Desktop+Mobile) Rapid Prototyping + Dev, Tool Dev

April 19th, 2015

Check out the book, "Slicing Pie".

David MCITP Consulting CTO/CIO for Small Businesses

April 20th, 2015

mixed-model appraches are always perilous.  Either take him/her on as a full partner with the same riksk/reward or raise 2 years'  salary into a secured account. and.

David MCITP Consulting CTO/CIO for Small Businesses

April 20th, 2015

mixed-model appraches are always perilous.  Either take him/her on as a full partner with the same riksk/reward or raise 2 years'  salary into a secured account. and.

David MCITP Consulting CTO/CIO for Small Businesses

April 20th, 2015

mixed-model appraches are always perilous.  Either take him/her on as a full partner with the same riksk/reward or raise 2 years'  salary into a secured account. and a conentional employment contract