Startup Funding

CTO wants to be the CEO and maintain absolute control...should I run?

frustratedcofounder Hurricane.

Last updated on February 5th, 2017

Start-up fintech venture in a unique position to raise a significant amount of capital ($5M-- but only $3M is working capital, $2M sits in an account untouched) before any actual work is done. 3 partners: CTO is creator of "product" and is responsible for all of the tech work (with tech team we'll hire with raised capital); other 2 partners raised the capital from an outside investor in exchange for 25%. Other 2 partners do biz dev, sales and marketing, operations, compliance, legal, regulatory, and anything else that does require coding knowledge. Have a sales pipeline established for products when ready. (hence ability to raise $).


1st question: If titles are necessary, the CTO is insisting he also be CEO. We say no CTO job too big to complicate with CEO responsibilities initially.


and 2: just curious what folks here think should be the equity (% split) in this situation. The 2 non-technical co-founders want to have the same positions.


TIA

John Duong Impact investor, ex-Wall Street banker, social entrepreneur, Yale, Northwestern Executive MBA

July 13th, 2017

Is he "presentable"? Besides technical skills, does he have charisma and ability to build a vision, execute it, inspire the right people, give credibility to the company from investors? If the answer is no, you need a real CEO...unlIke angel investors who are more forgiving, this will be very evident when an institutional quality investor joins the round and ensure the right leadership is involved. I would never invest in a company where I have no confidence in the CEO or the executive team to execute, no matter how great the product is.

James Wilkoszewski Executive Director at JV Corporate Pte Ltd

February 5th, 2017

There are many factors to be considered here and its often a touchy subject but to address the above maybe you can keep in mind the following. When involved in a start up many people get bogged down in who gets what and who is "in charge" instead of focusing on the idea. For those who have been CEO's they will tell you once the company is running and growing the top spot is a lonely place to be with no where to run in the event that your decision turns out to be the wrong one for your companies profits and growth. Without details I would suggest you all take directorship positions and cast vote for any decisions regarding spending and director that way. Remember to CEO runs the company but always answers to the board. You may also consider an outside third party to act as chairman to ensure that all remains fair.


Regarding equity split there are too many factors to consider. Normally start ups are at the mercy of the people putting up the cash so you will need to consider how you are structured. Keep in mind that pre-revenue tech is not valued as it was 12 months ago and if you are bringing the capital protect that relationship. Protect the investor. Companies come and go but you normally only get one shot with investors in a start up and if you don't protect their investment you can never go back to that party again on another idea.


Feel free to contact me if you would like to have a chat regarding the problem.

Dane Madsen Organizational and Operational Strategy Consultant

February 6th, 2017

Is he qualified as CEO? Does he know what that role requires and means? If the answer is yes to both, and you and the other partner are comfortable, then it should not be an issue. If the answer is no, and this is an ego move, then you should run. Getting a pipeline that gives you a $20 mm pre money is impressive and has significant value given that the CTO has yet to get a line of code written.

frustratedcofounder Hurricane.

February 6th, 2017

Hi Dane,


Actually I would consider the pre-money val to be $12mm, as the $2mm either gets replaced by earned revenue or returned to investor if we go bust. But indeed I thought it was pretty good too.


The "problem" we have is that in my mind...none of us are CEO material. However, if we absolutely have to choose, then I would be the most likely though admittedly have never held the role. We all have a pretty good idea of what it entails, its just that we think the CTO job is so important that we don't want there to be any distractions with day to day responsibilities.


So in a way it is an ego-driven, control oriented play. So my instinct is to run regardless of how it plays out. But this would be a tough one to walk from....

kraig from idea to MVP APP. Low rates. Full stack.

Last updated on February 19th, 2017

Are you actually in touch with potential/actual investors? Are they experienced investing in startups? If so ask them if they think titles are needed, and if so whom they think should be CEO. (I Presume they know, more about your company than anyone here, don't have a personnel involvement and are interested in the best fit for the company.) You could even approach those who rejected you for investment, you just want feedback.


Second I love the foudrs.com calculator gives a great talking point, for deciding how to split your equity.


Finally why does the CTO think he needs to be CEO? (Is it because, he feels otherwise the company won't be invest-able (perhaps some of the funding can be allocated to have a CTO/VP to take work off his plate, if he does need to be CEO, but you think its too much.)

Is it becuase he wants control(why? It's not like you can't outvote him) Is he worroied you might just give him

Is it because he wants control(why? It's not like you can't outvote him) Is he worried you might just decide to switch all coding to velato, and he can't do anything about it? (an extreme example but you get the idea)


Is it just an ego-thing? Can you make him Chief Visionary Officer/ or Chief Evangelical Officer (CEO)or President or some other meaningless title?


Edit. Just read your newest post. Maybe you should see if you can get an outside CEO, to join you subject to funding.


That way you eliminate personnel quibbling(if you can't decide, none of you can be CEO!) , overcome the problem of not having the ability to do the job , still retain control as owners/Board of director members, not adding to the workload, and have advice on tap. (I'd suggest offering them mostly remote work(perhaps with attendance at board meeting,though you could possibly just skype, that way you can increase your candidate pool cheaply.) As well as looking like a really serious company, to investors, your prepared to give up control to outside.