CTO · Equity distribution

How much equity should I give a CTO?

Anonymous

Last updated on August 20th, 2019

I came up with the idea in December 2018 and by Jan 19 I founded the company by myself, put in my own money, quit my job and got to work. I raised seed capital from friends and family and because I don’t have the technical expertise myself, I contracted a company to develop the webapp for me.
The webapp is an online platform for holiday rentals. We went online 2 months ago, launched a small marketing campaign and have been working on gathering inventory (properties). I did the project management myself and outsourcing what I could not do myself. During this time, I've ve been spending my savings and using company money for company related costs only.We now have about 500 users, over a 100 properties and we will launch for booking soon. I already have a small budget allocated for the marketing campaign as I am planing to start having transactions on the app before I go for series A funding!I n a month, the company I contracted will finish their work and I will have to have someone to take over. This is why I am planning to get a tech person onboard to handle tech and build upon what we already have as we move forward.
I have a potential candidate who has coding and project managment skills. However, They can only come onboard part time committing 10 to 15 hrs per week and is asking for $25/hr with 10% equity vested over 4 years with one year cliff. For some reason I don't feel it's very fair but I would love to hear 2nd opinions. Thanks in advance!

Paul Garcia marketing exec & business coach

August 19th, 2019

So the answer is ZERO. You never GIVE anything. Equity must be earned in trade for the value a person adds to the company. And it's quite likely you don't need a CTO. Please do not focus on that inflated title. The first thing to do is to make a list of the actual requirements/skills you need to fill. Likely it is not what a CTO does.

Broadly, someone who is only available part-time is not someone I would ever give equity. It sounds like you need an employee to manage your technology, not a CTO. Understand that each of the C-level titles comes with a very specific meaning and giving out titles because they're the first to hold that department position is a huge mistake. You as company owner are not a CEO. You are an owner, founder, maybe president, but CEO means something specific. Title inflation is a problem as companies grow.


We can't tell you what value some technology expert is going to bring to your enterprise or what that's worth to you. But my sense is that if you think you could live with a part-time anybody in that role, you do not need another executive, you need a regular employee with some specific responsibilities, one who has no right to equity and should just be paid (appropriately) for the work that they do.


Srinivasan Satagopan CEO @ Ecotech IT Solutions Inc., assisting IT product companies in realizing their product dreams

August 20th, 2019

Always, go for a Development team (that you will anyways need for ongoing development & support) that is bigger and they will provide, as part of the team, a senior member who could act as a Product manager and play the role of CTO as well. This would give you multiple advantages - 1) without having to give away any stakes you will get a CTO 2) Your CTO will have all the interest in building / managing a successful product since his team is engaged for the development and his time is also compensated 3) If that company has a background of product management for other companies, they will bring in a lot of additional value in product roadmap finalization, pitch deck for funding, etc.