CTO search · Founder equity

Chief Technology Officer/Architect - Does it take salary and equity?

Allison Rosenberg, Ph.D.

May 13th, 2015

I recently lost a wizardly CTO/architect when, after hours of Skype over the period of a month, he laid it on the line and shared that I would need to cover the full costs of developing the app and offer equity. Ultimately, I understand his position (he's in high demand; has family obligations; etc.), but I was really deflated. I have just consulted with another, very successful software entrepreneur, and he affirms I'll need to pay a reasonable salary and offer equity IF I want to attract a first class architect and incentivize him or her to stay with me. I'd appreciate the advice and experience of others in the software startup space. I'm especially interested in hearing from successful entrepreneurs who have faced and overcome the challenges of securing the technical expertise necessary to hit a home run. Thanks in advance, all.


William Gleim Co-Founder, Technical Lead at Coinalytics

May 13th, 2015

Yes.

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

May 13th, 2015

If you're a non-techie person with an idea that needs a techie to implement it, the three choices most people consider are:

1) learn to program and do it yourself;
2) learn to herd cats as a Software Project Manager and outsource it;
3) find a skilled software person and convince them to work for free, investing 1000+ hours of their time and resources in something where they're given some stock with a minority of control (if any)

Items (1) and (2) will chew up 6-12 months of your time and prevent you from doing much else during that time.

Item (3) is a long-shot at best. See below as to why.

I'm approached constantly by people saying, "Hey, I've got this great idea, and I need a programmer; if you'll build it for me I'll give you half [of something]". Yeah, right. After a few of those projects and getting half of nothing, I've stopped even listening.

For the third option, you'll find two types of people:

1) programmers who'll ONLY work for money; they have families and obligations, and they're just not going to take a flying leap on some crazy hair-brained idea with someone they don't know. Honestly, most startups that have strong techie co-founders are composed of a team of people who have been friends or colleagues for a long time. They didn't stumble into the programmer at the last minute while trolling for coders on eLance.

2) programmers who are very creative and have enough ideas of their own to work on for the rest of their life; these folks will need you to convince them of one thing: why to work for you for free for little if any control vs. working on one of their own ideas for free and keep 100% control.

And if you ask us, OUR IDEAS ARE BETTER THAN YOURS ANYWAY!

If you want us to work for you, straight equity usually won't cut it. A salary will make the most difference, as well as equity where we can benefit based on the value we're creating for you.

Here's your best bet for free techies: programmers who are unemployed and have money in the bank; who are older and semi-retired; or have sufficiently low overhead (ie., they live with their parents) so their financial needs are minimal. (There are lots of unemployed programmers in America today, but most of us aren't making enough to pay our bills. So $5k/mo + equity can make a big difference.)

Aleksandra Czajka Freelance Senior Software Engineer, Developer, Web Developer, Programmer - Full Stack

May 13th, 2015

Allison,

I run into these questions every day being a freelance Senior Software Engineer. I get 20 start-ups a day asking me to join for equity, which, 99.9 out of 100 times will mean that I'm doing the work for free. Why do they do this? Is it because it's the best thing for the business to hire someone for free? Is it because it tests the technical person's character and makes sure they're the right person for the job? No. They do this because they don't have the money. Is it the right thing to do for the business? Absolutely not. 

The best thing for the success of the business is to make sure you have the right team. Will you need to pay them, very possibly so. Is it scary because you will have to invest some money? Oh yeah. But, if you're not willing to do this, to me, as a person that would join your company on trust, it tells me that you don't believe in your concept. It tells me that you want to get into your business bearing as little risk as possible. And, if that's the case, why would I take a huge risk, devote my development time, which I can get paid top dollar for, just to put my faith in someone that doesn't believe in their own concept. Because, if they did, they would pay the top dollar for me.

Tell me this, have you yourself ever considered working on someone else's project, giving your expert advice, to someone you met a month ago, for entirely free?

I truly wish you luck on your project and hope any of my thinking is useful.

Best,
Aleks

Janine Davis President & Co-Founder Fetch Recruiting & Fetch Advisors

May 15th, 2015

In my experience placing CTOs in Silicon Beach startups, yes, it takes equity and cash (quite a lot of both - typical is 200-300k in base/bonus plus 1-5%).   It’s certainly possibly to try to attract a technical co-founder using some of the sites out there which do that matchmaking, so you might be able to find another wizard for equity, but it’s frankly one of those stars-aligned, blue moon kind of miracles.   Some of my clients have successfully brought in a talented Software Engineer who has created their MVP and architected/built the site/app.  But that can lead to a few long term, and potentially bring-you-to-your-knees issues: 1) the site will not scale; 2) the engineer used whatever language they are most comfortable with, not necessarily the best technology stack for what you are creating; 3) good luck getting funding without a real CTO in that square on your org chart.  

 

I generally recommend that my seed or pre-seed clients engage a CTO-for-hire. These are seasoned CTOs who have experience making (and breaking) scalable sites. Being an ex-technologist myself, I know that the best way how to learn how to do it right is by doing it wrong and then fixing it. That only comes with time and experience.   These CTOs have learned the hard way (but the right way), and can help you to avoid pitfalls that a Software Engineer simply has not had the time or opportunity to deal with yet.  

 

In Silicon Beach, I know several CTOs-for-hire, and simply refer them out. They are all willing to have a conversation, which if nothing else, can be validating to your approach.   If you have opted to get a Software Engineer to build the MVP/site, the CTO-for-hire can also be invaluable in validating the architecture to ensure it will scale (and that the right technology for the task at hand has been used).  If you decide to engage them, they are compensated in various ways - some are open to equity, some are hourly. In addition, some have their own Engineering resources on deck, and can build the MVP/site for you. Not saying it’s cheap, but it may still be the optimal way to go pre-funding. In addition, many let you use their name on your org chart, which helps you get funding.

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

May 13th, 2015

Software talent is in high demand, generally speaking. Actually, what's in high demand is people who have a bunch of experience using the latest toolstacks and shiny programming objects. There are tons of highly-qualified software people who can't find good work because of this, many of whom are over 45 and are barely making ends meet.

Somebody who can work for 100% equity needs to be in a financial position that they can get by without any income for 6-12 months. This is simply not practical for lots of people today, including underemployed software people. Finding someone is more a matter of luck than anything else in this case, although there are probably tons of folks who love your idea and would love to work for you if they could swing the finances.

I fit into this category. I spend a lot of my time driving for Uber and Lyft just trying to make enough to pay my bills. I've got my own ideas that I'm pursuing, and I need to find marketing and operations people who'd also love to work for straight equity and no pay ... because I have nothing to pay them.

This is a topic that nobody likes to talk about, in part because of the inevitable questions it always leads to, and the ridiculous suggestions.

It's hard competing with highly-skilled people who can work for free (or foreigners who work for $2/hr)! Apparently they're fairly easy to come by. Or at least people think they are.

Willem Muller

May 13th, 2015

Hi Allison I'm a tech guy with about 15 years experience in various capacities. Is the idea validated? From an engineers point of view, I don't want to feel like I'm doing all the work to validate someone else's idea. It really helps if you can get past the idea phase before approaching engineers. Some thoughts... * Try hack together something yourself using wordpress + plugins that demonstrates the concept * Run an adwords validation test on the above * Can you get pre-orders from the adwords customers on a crowdsourcing platform? Perhaps your product isn't suited for adwords - but then you should try meet your potential customers in person. I'd say doing this improves your chances with the engineer 2x - 3x vs asking the engineer to build something that you'll take to the customer.

Aleksandra Czajka Freelance Senior Software Engineer, Developer, Web Developer, Programmer - Full Stack

May 17th, 2015

Wow, such jaded opinion, Ming. Not sure why you have gotten so much bad experience. Hiring a developer is just like hiring anyone else with expertise that you don't have. There's many of us that have high integrity by nature. But there are some bad apples, just like there are bad apples in any industry.

As for the fact that if they like your project they'll do it for free, I don't see how you rationalize that. I would never do a project for free because 1. I value my time greatly and am a business woman, not just a senior, full-stack software engineer, and 2. I don't believe that YOU believe in your project if you're not willing to stake money on it. It's WAY too easy to say that you will get someone to do it for you for free. What do you want, Mother Teresa or a really great developer that values herself? I value myself and my time tremendously because I know what it takes to build an app, and no, it's not straight forward as you would make it sound like. There's a tremendous amount of skill that goes into it and that deserves respect. And that deserves compensation. 

Karl Schulmeisters Founder ExStreamVR

May 13th, 2015

I'm a CTO of a startup.  I have not taken salary.  But I get a large chunk of equity and my wife has a brilliant job so this is a chance for me to play.  BUT  I've got a deadline from my wife.

I've had offers from other startups where I get as much as 20% equity and 50% of normal salary.  Remember a CTO is NOT your #1 developer.  Your CTO is the person you bring on to run the technical execution of your idea.  That means THEY are not going to pay for the development nor do all of the development.   Sure they may do some of the coding - but mostly they are going to be responsible for the architecture, the data schemas, writing the copyrightable specs, possibly filing your patent applications and doing the daily job of running the technical team.

That means they need to have significant equity in the company AND the also need the cash with which to pay the dev team.


Sure they may be responsible for putting together the prototype and the initial website to validate the idea.  but yes YOU are going to have to come up with the funding for the development of the MVP.  And for that you can expect the CTO to get about 20% of equity.

You want the CTO to cofund the company?  make that 40%


Reuven Granot Corporate Strategic and Scientific Officer at Perlis Ltd

May 13th, 2015

Alison, if you pay a salary than your CTO may expect only ESOP. It includes only options and no more than 1%. If you do not pay a salary, than you just have a partner. If your CTO must work for his living, he or she can only be partners on a part time job and work for you after their usual working hours.

If you can pay salary, this is the best option for you, assuming you really believe in your success.

Karl Schulmeisters Founder ExStreamVR

May 14th, 2015

Stephen to answer your question:

>>What is the difference between dating a co-founder and paying someone with equity only because you don't have cash?<<

there isn't any real difference.  Unless the person you are paying with equity is very very very junior (read entry level).   The reason is that someone who has senior level skills does not need to work for an "equity only" payment.  They can find employment pretty much anywhere.   Thus the ONLY reason for them to work for "equity only"  or even "mostly equity"  is that they believe in the product and the vision.


Someone who is working in a startup as a senior person, for equity only who believes in the vision and the product... is almost by definition, a co-founder


What you are seeing in Founder Dating I think on the technical side are either

a) folks who think they have good ideas and know how to build it technically but don't understand how to go to market with the idea.    These folks are not looking for Founder who has an idea and is looking for a technical co-founder

b) senior level folks with jobs who are testing the waters for just the right idea.   These folks are rare, and will really only engage you if your idea is well presented and thought out.  And they will not be cheap

c) folks who are selling technical services to startups.  These might be contractors, they might be like us at ClearRoadmap who provide tools, they might be serial entrepreneurs who just like working for startups more than large corporations.  they will want both equity and cash


I would contend that most tech folks on FD fall into category (c)