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

[rightway2truth]

3 months ago we decide to start a platform out of my idea. I’ve been in business for a while, grew other people’s startups to Series B and so forth. But I’m going solo now.

My CTO, who’s a friend of mine, wants to join my new startup. However, he doesn’t want to leave his freelancing gig as well as his stress free lifestyle.

So he proposed: we hire a lead developer, he oversees him and I pay for the guy hired (together with all the other expenses, marketing, sales, etc).

6 months down the line, if the startup gets any traction, CTO joins full time and gets 50% equity if he pays me back half of the money I put in so far.

I’m the CEO, but since it’s a tiny team I do everything from fundraising to washing up dirty coffee cups.

Part of me says: ok let’s do it, as long as we start. He’s just a risk adverse person. I really trust him and he’s pretty good, although not a baller.

My other part says: this is a bit unfair and it shows that my CTO doesn’t really give a flying f*ck about the startup and probably doesn’t even believe in the product. That’s why he doesn’t want to get his hands dirty and waste as little time as possible. I, myself, left a 6 figure job for this, have to invest $50k or so and he joins if this turns into a ferry tale?

How do you guys interpret the situation given this little info?

Do you find the request fair? Perhaps I’m wrong?

EDIT: overwhelmed by the amount of intelligent and well thought comments. You are shaping the future of my startup, as I’m going to follow some of your advice. I will go through each comment and reply. Thank you guys

 

[helpmyheart]

@rightway2truth So he has no skin in the game, and no risk.

 

[davidg467]

@helpmyheart But gets all the upside.

 

[rightway2truth]

@helpmyheart Definitely not as much as me.

 

[youu]

@rightway2truth “As much”?
I think you mean none

 

[viesel]

@rightway2truth This is absurd. Part time CTO is a joke and won’t lead anywhere. I talk from experience. Look for a full time partner.
By the way - would you share info on your startup?

 

[lidzia]

@viesel I disagree. If the tech isn't the primary product but more of an interface, a part-time CTO can work. Full-time can actually be overwhelming for a CEO, you may build things faster than they can review.

The part time needs to be set precisely, like 3 days per week, not just «whenever I have time».

 

[sadnlost]

@lidzia I am part time CEO for 2 companies (10hr each a week) and then 60hrs FTE another. There are lots of scenarios where it makes sense for part time

 

[rightway2truth]

@viesel Sure, but I prefer in pvt for now.

 

[simanjuntak]

@rightway2truth Redo the deal at 25%, it’s crazy to get half equity for no risk

 

[ndune4jc]

@simanjuntak Even 25% is generous. Make a table of outcomes linked to levels of equity participation. Feel free to DM it to me, happy to review it.

 

[rightway2truth]

@ndune4jc Thanks a lot for the offer. I thought of this approach, however, I'm not sure it makes sense at this stage given the unpredictability of future tasks in the next 2 years.

 

[routa]

@ndune4jc Could you please elaborate? What's a table of outcome?

 

[ndune4jc]

@routa Sure. It’s a written document itemizing the rewards that the prospective cofounder would get in terms of equity in exchange for outcomes that he delivers. They would be scaled upwards in terms of value to the business, exponentially, probably x to the 4th power.

 

[mhncaldwell]

@rightway2truth Lmao joins only if there is traction and wants 50% equity lmaooo

 

[rightway2truth]

@mhncaldwell Lol

 

[confusionofchristianity]

@rightway2truth Like an even worse version of a VC lmao

 

[edward99]

@rightway2truth Right. You want to price the business now and then price it later. If you put in 50k for a dev and you put in 80k worth of work, then you’ve got a base value of 130k minimum. With traction you could value the business at 10-20x revenue.

At that point, to get 50% he needs to put in the cash at that valuation. Otherwise it should be as 4yr vested options at an agreed strike price.

Traction is when your valuation goes from theory to real. So I usually say a 3x multiple on cash/time input to a 10-20x.

 

[mitchellh]

@edward99 Agree! Remember to pay yourself for the work you did, then calculate what your investment seeds of 50k did and the growth the money had and think in terms of stock. Whatever the company is valued at is the price per stock he would have to pay. (Easy example: 100 stock, divide worth by 100)

At bare minimum he should not reap the rewards of the hard work you’ve done. He should pay fair market value to be a part of it, not just “half of what you paid” for 50% ownership.

Also, just my advice— never do 50/50. We are struggling to figure this out for ourselves right now but ESPECIALLY if you started by yourself, do NOT do 50/50. 49/51 may be acceptable, but give yourself the ability to choose your way instead of being at an impasse when voting. OR assign a third party a small percent of voting power (like

 

[rightway2truth]

@edward99 Fantastic and insightful comment. This is eye-opener. Thank you!