Ask HN: As a CTO for a seed company how much am I worth?

It comes down to traction. If the startup has traction, your risk is reduced several orders of magnitude compared to a company without. The odds of a startup gaining traction with demonstrated growth is say, 10,000:1. If a company has traction & growth, your odds of cashing out improve from 100,000:1 to 10:1. In your situation, if the company has traction, take the 8 percent and be happy. If traction is expected in the future, you are betting on a vision. To get to traction the startup will likely need your time, sweat, ideas to help tweak it. If traction has not been attained yet, you should be considered a cofounder and get at least the 15% you're asking. How replaceable are you?

Try just telling him "no" and see what happens. That sounds flippant but it will tell you exactly where you stand -- your value in this situation, in part because you didn't negotiate terms prior to building his prototype -- is exactly a function of your opportunity cost and his alternate options.

EDIT to add: Your framing and many of the other answers are mostly in terms of you and what you're "worth". I think you really have to reframe this in terms of what you are worth to the "company" aka the founder.

It depends on the kind of duties you are expected to perform and the risk you are taking by joining the company at this stage.

If your focus is JUST (and only) the tech its not a founder position - its senior executive. Founders are expected to do much more for the company than a senior executive. Founders help in crafting the overall strategy and are expected to do whatever is required by the company (over and above your primary responsibility, which is in tech in your case).

The risk is mostly defined by how stable the company is - is it funded already? how many employees did the company have at the time of joining? what kind of traction has already been gained over the past year? how uncertain is the future of the company in terms of its direction? The length of existence of the company is not much of a factor if there hasn't been any traction in that time period.

In the end it all boils down to what you and the CEO count as fair. A starting point would be to look at the equity portion in the startup school video here - http://startupclass.samaltman.com/courses/lec18/

Hope it helps in some small way.

It's certainly not JUST and only tech. I weigh in on everything from design to business to HR. I'm not a CEO, but a large part of my contribution is certainly business strategy and tactics. I'm decently well-read in starting start-ups and have started a couple myself. I care a lot about strategy and it's a lot of what we talk about.

It's just the two of us. Thanks so much for the link. It really does point me in the right direction.

Couple of strategies to consider:

If the CEO is suggesting vesting for this equity position ask for highly accelerated vesting schedule

Negotiate for protection against dilution if additional rounds of investment are needed. In the end, 8% undiluted might be better than 15% post dilution.

Another strategy that occurred to me is to take the CEO's offer and discipline yourself to take the $25K difference in cash and invest it in small cap stocks. Obviously it won't actually be $25K after taxes but you get the idea. This strategy enables you to diversify your risks. Of course if this start-up is the big hit you are hoping for the return from small cap stocks will pale in comparison to the returns from start-up equity.

Finally, you could ask for something in the middle - how about 10% / 115K

If it is more about the respect and co-founder status than the money itself ... ask yourself what other things communicate co-founder to you?

It sounds like this company is firmly founded (a year old, spending money, etc), so asking to become a co-founder at this point isn't fair to founder(s). Seeing as you've also been paid for the work you've done so far this seems like an amazing generous offer. Also think about what a different candidate would accept as CTO, which is what must happen should you decline.

No, it's certainly not firmly founded. The business plan has changed within the past couple months and it's been iterated over a lot. There was a prototype developed, but it's just given to investors for them to look at and is very basic / stripped down.

Is he looking for a cofounder, or an early employee. For an early employee, that is a massive amount of equity. The equity is to compensate you for the risk your taking in joining an early stage company, but you're not taking much risk, your getting a very reasonable salary, and the company is already over a year old.

He's looking for a cofounder

He's looking for an employee that he can trick into believing he's a cofounder.

- unequal equity split

- business plan was decided before you joined

You would be an employee and not a cofounder.

Thank you I totally agree, and it's been my main concern. I keep telling him "I don't want to be employee #1. I want to be cofounder"

Let's do some arithmetic for you. At 125k/8%, you're giving up $50k salary for 8% equity. At 100k/15%, you're giving up $75k salary for 15% equity.

But it isn't 15%. If it's a typical 4 year vesting, it's only 3.75% per year. So you're giving up $75k salary for 3.75% equity in the company. That implies a current valuation of $75k/0.0375 = $2M.

But you are a minority shareholder. You could do a great job, deliver a great MVP, and then be fired after 11 months with nothing (if it's a typical 1 year cliff). The founder could give a sweetheart deal to friend investors, diluting your equity. Your shares are common, not the preferred an investor would get.

So the CURRENT VALUATION of the company needs to be a lot more than $2M, for this to be a sensible risk for you to take.

There are two disasters that can happen to you. The startup could fail and your equity is worth nothing. The startup could be a smash hit success, and you get cheated due to your status as minority shareholder.

So you'd be better off keeping the job that pays $75k more CASH, and investing the difference.

I doubt his idea is that super-brilliant. The fact that he went this far without a technical co-founder shows that he doesn't really value that aspect of the business. You'd be better off saving/investing the extra $75k salary, and then self-angel-investing in your own startup later, where you could be a TRUE co-founder.

Also, as the above people said, a co-founder does not normally draw a salary at the beginning. They are expected to work for equity only, which seems like an idiot move for someone who could get $100k+ CASH as an employee. To give up that much salary, you'd need to be getting half of the equity or even be a controlling shareholder.

So, keep the job that pays $175k, save up the difference, and invest in your own startup someday where you could be a TRUE co-founder.

Another way to look at it is: If this guy pitched to you the idea of investing $75k cash in his startup for 3.75% in common (not preferred, no liquidation preference, no voting rights), would you do it, or would you laugh at him?

Can't agree with this breakdown strongly enough. Uneven equity is one of many indicators that your co-founder relationship won't be a balanced one, and from there there are a lot of toxic things that can happen. At the end of the day you have to trust your co-founder, and a big part of that is them respecting your contribution enough to give your say weight.

Wow. Thank you so much for this.

I agree with this comment . But I also think OP is looking for a first employee position, not a cofounder position. 100k is not a cofounder salary.

Giving himself 55% (and his father 20%) is a red flag. He's not looking for a co-founder.