I have developed the companies MVP prototype and have been offered the role of CTO. The monthly pay will be low to start with, but enough to pay the bills (Just). I have also been offered small equity and royalties. What would the standard offer be for a small company?
It depends entirely on the industry that you're in and how important your contribution is to the overall success of the company.
A couple guiding questions to ask yourself:
Speaking as both a founder and inventor, I typically setup equity (common stock) plus options for any early founding team, which usually totals, for all early stage employees, one-third (1/3) of the total common stock pool.
If it's a brand new venture, I will incentivize my teams by offering them very little salary and a lot more options: if we've already raised some funds, then the salary will be higher and the stock/options are lower. This way our incentives are aligned and we're all hungry for success.
I don't like royalties as investors are typically not a fan and it can hurt a company's ability to raise money.
You should also review any contracts you've already signed as part of your development work, and any contract they are offering you: the company may own all of your work already and this will obviously affect your leverage and negotiating strategy.
Hope it helps!
Did they pay you to develop the MVP? How much of it was your invention?
I ask because it sounds like you're being treated like a code monkey.
Royalties is an interesting twist, but are they forever? What if the company gets sold? (The buyer will not want a royalty deal.)
You should be paid your market value - what you would make working anywhere.
Be very careful about stock. Talk to a lawyer. It is not uncommon for a startup to be very successful, but the stock to be worthless anyway - again, a lawyer can explain how this happens better than I can.
Only way I would work for stock is with a loan with a option. The company loans me $1 with interest and "all assets" as collateral. I also get an option to buy $1 worth of stock at any price/deal they did with anyone else forever.
Even under this scenario, 10% chance of every seeing any money.
It is not good practice to "mix" your CTO with investor. A CTO is someone with certain skills and an investor is someone with different skills. Trying to find a person who has both the skills of an investor and a CTO is mission impossible. When I see startups paying people with stock - it is usually a sign that they can not raise money. Without the ability to raise money a startup will fail - any you can not find enough people willing to work long enough for stock to become successful, excepting maybe a few "bootstrap" type businesses.
I don't like the idea of a low start, if most of your business is driven by technology and i think the equities and benefits should be equal to the founders. CTO is the person who believes in the vision of the founder and drives whole technology to build the dream.
If founders, or CEO don't understand, then, that this is a big culture problem and issue of ethics. If they can't take care of their first few followers how can they build a company ?
More over please read about equities/ ESOPs and don't just fall into the trap. Realize those are for long-term having said that founders and CEOs have the ability to terminate you at any point in time.
This depends on the critical role you are expected to fulfill as CTO and the role technology plays in the company strategy.
If this is a "technology" business, one where the company will live or die based on the platform and its evolution, then a small equity is insufficient for a CTO. I am familiar with royalty compensation, but that must be well understood to have value to you. @Andy Freeman is partially correct: an acquirer may look negatively on a royalty, but most likely they will force the company to convert that royalty to value in some manner prior to any deal. They will not want to add an accounting function with complex risks in valuing the enterprise.
When it comes to you being CTO, the question is if you are best for the role. Assuming the company needs fast and furious evolutionary development of a platform that has not achieved product/market fit, the key for a CTO is to deliver on that technology with all the intelligence of engineers/UX/UI/everything else that can be pulled together on a small budget driven by the markets (not the engineering team). This requires you to be excellent at leading. developing, and recruiting to the engineering team, and not be the guy that writes the code. This is not just tech skills, it is people skills. It may be personally satisfying to have the title, but recall all the great and failed CTOs you may have worked for or been exposed to and ask if you are the right person. This is not to question your abilities, but your willingness to do what must be done.
If 1) the tech is the product, and 2) you are right for the role, then small equity or royalty is frighteningly insufficient and speaks to the company leadership trying to control the cap table for purposes they are not transparent about.
WIthout more understanding of the market you are in, the history of the company, the stage of development (past the MVP), it is not possible to structurally answer your question other than to state that any outside investor will look at a cap table and consider if any key role is incentivized in both cash (a living wage is viewed positively, excess is not) and equity to make the company a success. If they think you can cash checks and live well without regard to the company, they will balk. If they think you do not have enough long-term skin in the game to stay when it gets rough, (and it always gets rough), they will not invest.
Hope that helps.
I have already helped several companies build their products as their "Virtual CTO" or "CTO for hire".
So, I think I speak with some real world experience.
What you pay the CTO depends on this "Is technology the backbone of your product? or just enabler?"
- You are a Yoga teacher trying to reach out to larger audience. Technology is just an enabler. You can join already existing social media groups and apps.
- You are trying to build a Ed-Tech product to help students learn through a mobile app. Technology is the backbone here.
You will also have to pay more if you "depend" more. Pay less if you depend less.
Does that make sense?