Compensation

Compensation question

Chandra Jacobs

November 15th, 2012

Hi guys,

I wanted to some advice on a compensation question. I am about to bring on
an algorithm developer for a 3 month part time project, with the potential
of hiring him full-time if we get funded and the working relationship goes
smoothly.

What is an appropriate compensation model for him? Can I just offer equity?
If so, how much? What about a mix of equity and fixed fee? Vesting?

Please chime in and let me know your thoughts!

Cheers,
Chandra
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Chandra L. Jacobs, Global MBA 2012
therestlessr...@gmail.com Phone: (703) 785-0621

Thunderbird School of Global Management
#1 "International" Full-time MBA (U.S. News & World Report 2013)

"Borders frequented by trade seldom need soldiers."

Too many founders wing it when it comes to financials; they have no idea how to explain them to investors. In this course, we’ll teach you how to build a basic financial model; read financial statements; and understand cash flow, balance sheets, and income statements.

Nick Pontacoloni Online Media Sales and Marketing

November 15th, 2012

Hi Chandra,

I would recommend two things.

1) Don\'t give up equity if you can afford to pay cash. Most developers
I\'ve worked with actually won\'t work for equity. They are offered ideas
from friends, family and peers on a consistent basis and most experienced
developers have learned not to work for the potential to be paid in the
future. It can also result in a lack of enthusiasm and you may find
yourself with many delays.

2) If you do offer equity, make sure it is rolling/vesting based on key
milestones that are explicitly defined and mutually agreed upon up front.

Having done this a couple of times to certain degrees of success and
failure, your best bet is to try and pay a "Project Fee." Ideally would be
1/3 up front, 1/3 at a certain milestone and 1/3 upon completion. Some of
the better developers, in my opinion, won\'t work on a Project Fee basis,
because they can\'t accurately predict the number of hours it will take.

Another option if you are short on cash may be Convertible Notes, but again
you run the risk of people working for "free" and not completing projects
on time. In order to accurately calculate Fees, you may try to back into a
mutually agreed upon hourly rate based on the specific tasks that make up
the project.

What ever you decided to do, make sure you are very clear and upfront on
tasks, milestones and timelines. Project management is an essential skill
at this stage and its important to find non-monetary ways to inspire and
motivate.

Nick

Joshua Butner Founder / Partner at Vulk

November 15th, 2012

I\'m 31 (and a half :-) and don\'t feel old. The only time i start to feel
old is when people start talking about new "college talent." But then I
realize I\'m more experienced (and as a result, most likely better) than
them.
On Nov 15, 2012 12:49 PM, "Jia Jiang" <j...@souplus.com> wrote:

Jessica Alter Entrepreneur & Advisor

November 15th, 2012

chiming in as actually doing a similar arrangement with someone right now...
1. Compensation - the answer is a mix of a) what you can afford b) what they will accept and c) the longer-term goal. Re a - if they won\'t work for equity you have your answer and if you are cash strapped you also have you answer. Re c) is this really a one-time skill you need or a trial-period to see if you like working together? If the former then set up additional incentive to keep them involved - even as an advisor. You can turn them into employee shares and back date their vesting if they join later. If the latter, then cash is better for someone that isn\'t going to stay involved with the company but of course, see a and b.
2. vesting - if you do offer equity it should vest monthly for a contractor - assuming that\'s a large part of their compensation. Doesn\'t make sense to vest them over several years if the situation is that they are swooping in and swooping out.

hope that helps,
JA
On Nov 15, 2012, at 10:06 AM, Chandra Jacobs wrote:

Hayden Tay Marketing and Customer Success Manager at ChargeSpot Wireless Power

November 15th, 2012

That\'s quite a false illusion. Just like the real world, the entrepreneur
scene can be quite heterogeneous in terms of age.

There are several articles out there discussing age and enterpreneurs -
this is one:
http://neilperkin.typepad.com/only_dead_fish/2012/02/is-the-average-a...

Research published a couple of years
ago<http://www.kauffman.org/uploadedFiles/kiea_042709.pdf> by

> the Kauffman Foundation showed that the number of company founders older
> than 50 was double the number of founders younger than 25, and the number
> of founders over the age of 60 was twice the number of founders under the
> age of 20.

Kristin Fitch Co-Founder ZiggityZoom Media-Online & Mobile Ed Tech- Content & Games- Business Educator & Mentor, Author, Speaker

November 15th, 2012

I think the obvious startup founders are 18-25 but there are so many
startups across the country who are founded by those in the 25-45 and up
range. I think those over 25 have experiences that often help them make
better decisions, and this is the talent I believe more people need to pay
attention to. Also, I am mid to late 30s and a female. I guess either
could make me feel old or the minority but it does not. I look for like
minded people with similar interests (and talent).

Kristin

Kristin Fitch (Virginia Beach, VA)
ZiggityZoom.com

Brian Karas

November 15th, 2012

I\'m closer to 40 than 30 at this point, but started my first company in my mid-20\'s.

I don\'t consider the overall "startup scene" to be dominated by people in their 20\'s, but I would say that a large number of the 1 or 2-man web-app type things seem to be primarily the output of that demographic.

In any case, I certainly do not feel "old", if anything I think that the mid-20\'s folks are often perceived as "young"...

On Nov 15, 2012, at 1:49 PM, Jia Jiang wrote:

Christian Hresko Product Hacker

November 15th, 2012

I\'m 39 and am a technical founder. I can out-code any/most 20 year olds on
mobile, no problem.

On Thu, Nov 15, 2012 at 12:26 PM, Tim Scott <tsc...@lunaversesoftware.com>wrote:

Alexander Ross Head of Business Development at Verifide

November 15th, 2012

Sorry but this strikes a nerve...

I may have been more willing to pull all-nighters at 25 and live on ramen. But now I can bootstrap from consulting and have friends in some nice-to-have places.

And a couple decades industry experience give me experience for plenty of business ideas outside the usual social/mobile/food recommendation/photo sharing/whatever fluff that seems to pass for new ideas. Apologies to anyone who\'s working on one of those, but many prob know what I mean. There are plenty of unsolved billion dollar B2B opportunities out there, but if you haven\'t lived that pain, it\'s not likely you\'ll be driving the solution.

TechCrunch wrote a piece a few months ago claiming that no one over 30 could succeed as an Internet entrepreneur. Thank god commenters quickly pointed out all the counter examples (LinkedIn is an obvious one). And that the average age of all companies started is like 38 (that\'s from memory so don\'t quote me). Crap like that is why I feel smarter when I stay away from TC and others.

There is a myth (Zuckerberg inspired?) that startups are easy and cool. And yes, there is a current ageism in the tech world. But the best people I know, technical or business, have a decade or two of experience.

And, while I\'m on a roll, failure is not to be celebrated either. Thats what they tell you in Little League. Name a serious sports team that *celebrates* losing. Or an Army that *celebrates* casualties. (Yes I\'ve participated in both- remember I\'m old.) They are a cost of doing business and a risk that needs to be accepted. But if you\'re celebrating them you are probably are kidding yourself. Or still in Little League. Remember- \'Social Network\' was about Facebook not Friendster.

Apologies for this becoming a bit of a rant. But there is a fantasy that has descended upon the startup world about this stuff and it really bothers me. Whether you\'re 16 or 60, I don\'t think anyone should be discouraged from entrepreneurial leanings. Just please don\'t think it\'s easy...

\'40 year old corporate burnout\' is the new \'20 year old Harvard dropout\'. Don\'t believe the hype, old guys rule... :)

Peace out,
Alex

On Nov 15, 2012, at 3:27 PM, Inder Singh <irsi...@gmail.com> wrote:

Patrick Costello

November 15th, 2012

I\'m about to turn 27, the other people on my team range from 19 and 25. How
do you older folks feel about working on teams comprised of much younger
people? What sorts of team dynamic issues have you run into before working
with much younger people?

Best,

Patrick

Michael Barnathan

November 15th, 2012

Jumping into the conversation midway, I\'d echo this - look at the
distribution of medtech. startup founder ages and you\'ll see a
significantly older skew. While I have seen the occasional 20-something
medtech entrepreneur (and attempted to become one myself when I was 25),
you are correct that the credibility required to start something in this
industry is not easily accessible to the typical mid-20s entrepreneur.
One of the major sinking points of my own venture in that space was lack
of a "seasoned practitioner" on the team, to use the phrase that was
literally thrown at me by everyone from angels to the FDA. This despite
having dozens of academic publications in the space I was working on and
more technology credentials than you could shake a stick at.

My advice is "don\'t worry about age, just do what you\'re going to do".
Don\'t fall into the trap of thinking that the valley game is the only
way to start a company; it isn\'t.

On 11/15/2012 11:43 PM, Gerardo Barroeta wrote: