Does this deal tell that my CTO doesn’t give a sh*t?

[613jono]

@rightway2truth If your business lasts 6 months and gains traction it’s far more valuable than the initial money you put in as the concept has passed initial tests.

A better deal would be 35% equity for all of the money you put in

Do you really need him?

 

[rightway2truth]

@613jono That's a very valid point.

The platform I'm trying to build is fairly complex and needs to be able to scale to thousands of users. Now, it has to be said that my CTO has never created a platform that scaled so much, but I'm confident he can figure things out.

At the same time, I won't have a clue on how to direct a Lead Developer and ensure he does a decent job.

On top of that, it's also about the whole startup philosophy. Even if I don't really need him, I would like to go into this mission with a partner rather than embarking on a solitary solo-founder journey.

 

[suepreme]

@rightway2truth Cut your buddy and hire a better developer and keep all of the upside for yourself.

 

[joneshomes]

@rightway2truth 50% is too much equity. It’s your company and you need final say on direction when there is a decision to be made.

Something like 70/30 or 60/40 makes more sense.

Another idea: You have your friend help you interview and hire a developer who can act as a partner for you.

This will give you insight into your working relationship and maybe it’ll help him get excited about the company.

 

[righteoustales]

@joneshomes Yeah, interview consultant and give him 1% for him trouble...

 

[christiansophistry]

@rightway2truth Engineer here - don't overestimate the ability of somebody who has never scaled a product here. Engineers often overestimate their own ability to handle this situation when they haven't been in it before. Talk to a software architect who has scaled a system and pay them to evaluate your friend if you're thinking of keeping him as a CTO.

 

[rightway2truth]

@christiansophistry Valid point here, thanks for chiming in.

When we discussed scalability he sounded a bit freaked out. He said it's not easy to scale a platform to handle thousands of users. The statement is fine, the tone he used was a bit worrying.

Myself too I have never raised more than $8M. But the idea of raising $50-100M is exciting to me more than scaring.

 

[nadz]

@rightway2truth If he has never done it he has considerably less value. One way to think about this is the perspective of this will be where he gains this experience and the end result most likely won't be as good as someone that has actually done it. Someone who has done it knows what went well and what didn't and more importantly what to avoid the next time around. Your friend has none of this, the way it sounds anyway. What does this mean? We'll tech dept, refactoring in the future, etc. Might not be a big deal to you, but something to consider if you don't intend on this being some sort of prototype.

I'm assuming you threw thousands out there, but that is not a lot of users at all. I'd also assume concurrent, but again that is hardly much. Maybe its irrelevant then?

 

[christiansophistry]

@rightway2truth I can relate to your desire to have a partner in this endeavor, it's what's been holding me back personally. I won't compromise on the quality of my partner though, I expect somebody who'd as committed and capable as I am. The person you've described likely thinks his mind tier engineering skills are worth more than your business skills, the money you've put up, and your commitment as he's asking for a safer and better deal than you're getting. I know where that mindset comes from, it's a worker's market in the tech industry and there are plenty of people with some vague idea and no experience who'd love to have an engineer build their product for equity instead of pay. The difference here is that you're putting significant money and time into your product (and hopefully you have business experience).

 

[lauraallison48]

@rightway2truth To be honest, thousands of users is not rocket science. Thousands of requests per second - that is rocket science.

it has to be said that my CTO has never created a platform that scaled so much

So how is he going to manage the Lead Developer then?

I won't have a clue on how to direct a Lead Developer and ensure he does a decent job.

A friend of mine was in your shoes 3 years before and learned how to manage developers in a hard way. I would not suggest this to anyone.

What you can do is identify the milestone and ask someone whom you can trust to review the results upon reaching this milestone.

Or I can give you more specific advice if you share a few more details about the platform you are going to build.

 

[routa]

@lauraallison48 How can one review upon reaching a milestone? How can one predict what's gonna happen to Startup say in a month or so or even a week?

 

[lauraallison48]

@routa There are two questions here:
- how to review
And
- how to predict

As per first one: usually developers do peer review of their code as a regular practice.
For the second one: long projects usually split into smaller milestones. You build essential features first as a MVP and release it to the public for feedback. Even within mvp you can have multiple milestones, as a small subset of functions you need in the software product. In some cases, like scrum project management methodology you identify your milestones a a sprint. So you have shorter iterations and can adjust your software features according to changes business needs. This is so called agile methodology.

 

[americangirlinjapan]

@rightway2truth Scale to thousands of users? That’s not a whole lot. Maybe you don’t need to worry about scaling as much as you think. You can run a beefy single app server and database in the cloud which will handle a lot of load. Can probably handle a million users typically on standard hardware. If you get to 100 million data points or 10 million users then you need to worry more about scaling.

I would suggest to build it now and worry about scaling later. You said you expect to launch in 6 months or so with one developer building it? So then that’s a small app, can be refactored for scale later if it’s getting traction.

Also building for large scale is harder and probably need to take advantage of cloud scale technology which adds a lot of effort and more advanced knowledge which you’ll have to pay for before you can prove out the business model.

 

[gallagrrrr]

@rightway2truth You are taking all the risk, and that's what should be rewarded. Still sounds like he could be a good consultant, but he has the completely wrong idea about how much he should get. It should be closer to 10% than 50%.

 

[rightway2truth]

@gallagrrrr That's a solid argument.

10% is what we initially talked about. He gets 10% vested in X years, I hire devs and he manages/directs them for a few hours a week. He then decides to build the MVP all by himself, and therefore no need for me the dev anymore and he would get 50% of the company.

But now, after less than 3 months, he stopped and he said he wants to focus on lifestyle, that is why he prefers the 10% model.

He's confusing me, and I'm afraid that even if we go down the 10% consultant route, at some point I will need to find a real CTO to take the startup further (e.g. AI, Machine Learning). And when this happens, I'm afraid that 10% will become dead equity.

 

[suepreme]

@rightway2truth I have experienced this kind of situation. Your FAR better off going it alone. He WILL cause you serious pain down the line. Guaranteed:

 

[khathutshelo]

@rightway2truth He's never going to join you. He's being explicit his goal is lifestyle, not a startup. Those are not usually compatible. Even if he does join you on paper, if his heart isn't in it because he'll want the lifestyle back, he'll fade on you and then you'll have to fire him. Plus he may have equity so you'd be stuck with him forever.

When the business relationship inevitably fails, is it worth destroying your friendship over? It's better to accept his feelings, shake hands, and move on to find someone else.

 

[martinshalo]

@rightway2truth That's why all equity needs to be cliffed

 

[gallagrrrr]

@rightway2truth Best of luck. No-one on the internet can give you the right answer without knowing the full situation, but it seems like you need to do some thinking and come up with a bulletproof contract if you decide to work together.

 

[rd89]

@rightway2truth I think some of the advice you're getting here is pushing you into kind of a toxic mindset about how you're approaching this.

Bottom line: be collaborative when you negotiate, not combative. Listen to each other's needs and desires and put together terms from there that suit both of you.

Your CTO doesn't sound particularly unreasonable here. First off, you're just getting off the ground and you don't actually need a CTO for your first six months; just having him around advising you (which it sounds like he's offered to do for free) is probably all you need initially.

It's quite common to have a contractor build out your prototype so that you can validate the business and then bring in full time people, and although it will cost you some money, I think that constraint of having to pay that contracted dev for every hour of their time will be helpful to you and force you to prioritize specifically what matters. If you're working with another cofounder and it's just the two of you it's easy to fall into the trap of throwing all the hours of your day at problems without thinking about what's important and that leads to burnout and bad prioritization.

I do agree that your CTO's 50% equity ask is pretty high considering that you're the one putting up your own money. But that's the number you two can negotiate on pretty easily and I think it's easy for you to make your case that his stake should be smaller. But don't ask yourself how little you can get away with offering him, ask yourself how much you can offer him and still feel comfortable. If I have 2% equity and you have 98% equity then I'm not going to be as invested in your company's success as you are.

But importantly, you can't let yourself get personally offended that your cofounder is trying to manage risk. It's good to have a mixture of someone who is taking a leap of faith and someone who is more grounded so that you can really talk things out and make better decisions.

One last thing: I'm not sure about whether your cofounder can pay you money in exchange for his equity stake. But I think that you can probably make some sort of arrangement where costs shift more to him when he comes on so that you can get a little breathing room.