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Jon Bradshaw & Peter Harris

Hiring a CTO? Then this is the episode for you. We discuss salary/equity compensation for startup CTO's at a seed-stage startup.

How Much Should You Pay a Startup CTO?

We were recently asked by a friend what a startup CTO’s salary should be for a company with little to no revenue.

Peter and Jon decided to ask their network what “fair” compensation would be. Please remember that most individuals were making a recommendation only on partial information.

We presented the following to each individual.

What are the current terms for a Startup CTO?

– He makes $200,000 with $50,000 in equity and other benefits at his current job
– He’s willing to take a salary of $150,000
– The startup just raised $1M from a “notable” VC
– No details on the $1M raise is known
– Revenue is $5,000 MRR or less

The startup is asking him to make an offer.

I told them to put it back on them, and for him to also ask about:

– Total shares outstanding
– Details on the current cap table
– Current price for common stock

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Episode Transcript

Jon: You ready?
Peter: I guess. Let's do it. All right.
Jon: This is the Venture Capital podcast with Peter Harris and Jon Bradshaw. I'm Peter. This is Jon. Hey. Just getting good at if you want to subscribe to other channels. Let's begin. So this week, this week or the prior week developer came to me and was offered a CTO position.
Jon: It was kind of very unusual because they were asking the developer what he wanted his compensation to be, to be the CTO. Personally, I saw that as a huge red flag.
Peter: Why? They're just like making him like, set the bar right?
Jon: Yeah. So you could just see it from from a standard? In most cases, I don't know. I always see this very nontraditional. Maybe not a bad thing. I feel like it was an aggressive sales move.
Peter: Yeah, I mean, it's. Yeah, it's just a it's just a negotiation tactic.
Jon: Just a negotiation tactic. But so for this podcast, the question is, is how much should a startup CTO get paid? And we asked a handful of people. Some are founders, some are angel investors, some of VCs. And at the end, if we're lucky, the two of us will kind of, you know, give our opinion. So if you're looking to hire a startup CTO, here's just kind of different perspectives that different people have.
Peter: But first, you should give some context, like.
Jon: Okay, so here's the background. So this individual has never been a CTO before. They're currently making $200,000 as a salary plus 50,000 in like equity and bonuses and 11 other things like that.
Peter: Or the equity or the bonuses.
Jon: I'm assuming I'm assuming the 50,000 is like 41k might be bonus equity. Okay. I don't know. It was really tricky when this person first came to me because they're like, What should I get? What should I ask for?
Peter: Yeah.
Jon: And I'm like, There is too much here that I don't know. I can't answer. And and even with what what we're going to share here, I think it's almost too vague for anyone here to give a true number. But I think it's good as a good as a as a range.
Peter: Sure. Right. What's the rest of the context?
Jon: So they make 200,000, 50,000 in equity. In other benefits. This individual is willing to take a salary of 150,000. And the startup just raised 1 million from a quote unquote notable VC, which I have no idea what that means. I told him I'm like, Hey, I'll sign an NDA, give me more information. I can help you more. He was not willing to do that, which is totally fine.
Jon: Sure. And but the revenue I thought was interesting. They're doing less than 5000. Emrah.
Peter: Yeah. So like 60?
Jon: K.R. Well, yes, I'm as means less. I'm assuming they got one customer Two or like.
Peter: Yeah.
Jon: I just kept drilling and, and I'm like, is it less than five?
Peter: And then they have more than one customer. They have real small customers. Yeah.
Jon: So super, super surprised. It's SAS, but I don't know anything else beyond that. So again, so many things are here. I don't know. No one on the team has ever sold a company before. That was one of the things they asked, because I think if you're for example, Brandon and Jared Rodman who started we went public are now starting another company.
Jon: Yeah. I'm assuming that that cap table, if I were to join hypothetically, would look very, very different than joining like another startup.
Peter: Yeah, we're even joining we've in the early, early days, right?
Jon: The startup is asking him to make an offer. Yeah. So that's. That's the high level information of what we know.
Peter: Yeah. Okay.
Jon: So we're going to go through some of the responses. The first two are from Jon and Tyler Richards. They are they just raised a $20 million fund called the Startup Ignition Fund, and they invest in in seed pre-revenue companies. So I'm going to read let's go through his points. All kind of read it in, though, kind of we'll kind of jump in.
Jon: But the first thing is, he was surprised that a VC made the investment recently before March 31st. He surprised anyone did that after April 15th. So I don't know. I don't know what the dates were, but I'm honestly surprised the individual raised 1 million with no prior exit. A history. Yeah. In that little revenue.
Peter: Yeah, I agree. I mean, but yeah. Without having more to go off of I mean. Yeah. But yeah, I mean Flipside is right like we're looking at a deal that's got less than that and they're going to raise a lot more money than that at a higher amount round valuation. But they got a lot of other stuff going on right.
Peter: And so, so his is a bit tricky.
Jon: There is point number three, I think is dead on. He says. I don't think a startup should be paying a guy 150,000 if he needs that kind of a salary. So I mean, you know, that one's debatable, but like $1,000,000 doesn't go that far.
Peter: Yeah. Yeah. You're going to spend 15% of that. Well, really, once you add on like taxes and all that other business, I mean, yeah, they're going to be like 16% of that, that million dollars out the door gone for the CTO for one year.
Jon: So, I mean, that number, I think personally, you want to get your burn way, way down.
Peter: Yeah, well, especially in this environment, this environment, you need to get that burn as low as possible. Right. And extend that runway out as far as you can.
Jon: Right. You know, I know it's tricky, but I would just be I just know cash is king. And yeah, I think I would spend more time trying to sell that individual on the vision.
Peter: Share, not just biased, though. Like what he really should do is higher code base. Maybe we could take care of them.
Jon: We could definitely crush them. One other part. But yeah, so that's what they're what they're currently looking at. And I know you don't do much in the C space, but they've got three doves, so right there. Three devs based in the U.S..
Peter: That's expensive.
Jon: That's easily a third to half of their entire raise.
Peter: Yeah. Wow.
Jon: Okay, so you see where I'm concerned because. Yeah. 50% same product. I mean, I've seen assuming the CEO needs money, they're going to have other administrative expenses.
Peter: They're going to burn that million in a.
Jon: Year and they don't have sales right now to offset it.
Peter: Yeah. They got 5 million or five K.
Jon: So the next thing is Jon Richards gives us a graph and he says this is how much salary versus equity that he thinks someone should get. And we first saw this, it didn't make sense, but we looked at it. He's basically saying, hey, if if this person was saying, I'm working for free. Yeah, Jon Richards is saying give him 20 to 35% of the company.
Peter: Yeah. And that role, he's kind of a co-founder, right? He's like putting some real risks and real skin in the game. You know, he didn't start it. He didn't raise the money. But it sounds like he's a pretty necessary, you know, piece of the the overall pie. And so, yeah, I think I can see what Jon Richards is saying is like, hey, let's give you this guy a meaningful chunk of equity in exchange for, you know, the the effective 150 million or sorry, 150,000 that he's kind of, quote, unquote, investing in the company.
Jon: Yeah, I agree. Out of curiosity, when I was talking to this individual, I said one way to approach it, which I've only done once I've never seen anyone else do, is I just plugged in the time value of money equation. How much is your current salary? How much is your discount? What's the current market rate? Yeah, what's the current valuation?
Jon: Okay. Based upon this and the actual number was far less. And at that point we just didn't do a deal. This individual was working at Facebook at the time because they're like, I need 30, 40%. And I'm like, It's me and another founder. We have 50%. We do this like you're showing up when we already have significant traction.
Jon: That's a very different part of the game.
Peter: Yeah, Yeah.
Jon: So the second party says if you're going to take a salary of 4,020%, 6000, 50%, his borderline spot bad was pay the developer ten K a month and give them 10%.
Peter: So 120 K a year and 10%. And he says that's bad y because like I have it, 10% is not enough for.
Jon: I don't know why.
Peter: He says 120 were too much.
Jon: I would assume that pain's still ten. Okay. He would try to I'm assuming he would try to bump them to another position. More equity, less cash.
Peter: Yeah, I think I think one of the things that's interesting here is that at this stage I would really be asking myself as an entrepreneur, like, do I need a full fledged CTO? Right? And maybe he does, but if that's the case, what he really probably needs is a technical co-founder. And those aren't necessarily always the same thing, right?
Peter: Like a CTO of a really big company, even not even a really big company, like a company with, you know, a couple of hundred employees is a very different individual than a CTO or of like a startup where they're really a technical co-founder. So yeah, I think that's part of like one of the things that Jon's probably getting at is that, you know, if you're going to bring this person in, they've got to be really invested.
Peter: And if you're paying them like 150 K and giving like a huge chunk of the company, then they're not giving them a huge chunk. Like you're just paying them, then they're really just like a mercenary. They're not you know, they're not like part of the company that makes sense. They're not sacrificing for it.
Jon: So I'm going to take come it back. Why? It's borderline bad if you re his next point. He says anything under 10% equity usually fails. So I would agree with that completely. Yeah. I think when people don't have double digits and four and they're not taking like a significant investment, yeah, there's like this bar where has to be something consequential in their head.
Jon: So if they have two or 3%.
Peter: Well it's all about risk and reward, right. Like bringing on a CTO and giving them 1% of the company to like the series C stage. Like that's really reasonable, right? And probably on market. But at that point, like, the risk is so much lower. Right. And and that that 1% could be worth already worth a lot of money right Company companies worth like 300 million at that point you're effectively like 1%.
Peter: You're giving him 3 million bucks.
Peter: Right. So that's very different. This company. I don't know. I'm spitballing here, like if they raised $1,000,000, I don't know, maybe, like, you know, you're talking like $5 million post. So, you know, that's, you know, kind of valuing the business at 5 million bucks. You give them 10%. That's it's not that much. That's like 500 K of equity if it's successful.
Peter: And then you discount it there for like risk, like likelihood of actually achieving, you know, that 500 K or receiving it has probably like a super high discount rate. So.
Jon: So yeah, So this this is Jon Richards. He's been an investor for the last 20 plus years. Yeah, he's had several very, very big hits.
Peter: Yeah.
Jon: So, and it was.
Peter: That and like every good angel, he's also lost a lot of money. Probably on some other bets.
Jon: I think he's. Well, I have no idea if his my, my perception perception guys is that he's ahead.
Peter: I'm sure he's probably ahead.
Jon: So you'd have to win them all now.
Peter: You know it's the game, right?
Jon: Okay. So Tyler's his co-founder on the new $20 million venture fund Start Ignition Ventures. So this is what he said. Ask them in like a group chat, he says. Yet typically with high salaries, a CTO gets less equity, the higher the equity, the less salary. I mean, if everyone could get paid six figures and have 30% of a startup, wouldn't everyone be an entrepreneur?
Jon: Which is I think is a very true statement. I think everyone wants to have their cake and eat it too. Yeah, they want the 30%. They're not willing to take the risk.
Peter: Not everyone's a full stack developer though.
Jon: But if it's full stack of becoming much more common, that's fair.
Peter: That's fair. And point taken, right?
Jon: Yeah. So last month, he says they got a CTO for one of their portfolio companies. They landed on 10% and 100 K in salary and we thought that was a killer deal for the CTO. Yeah, obviously it's all situational.
Peter: Yeah, but the, the deals that they're invest, they're not investing in a company that's you know 60 K or are either right. They're investing and can be a little further along so a little less risk on the table. So I think to you.
Jon: Yeah I think what they're suggesting here is hey give this individual 100 K 10% of the company.
Peter: I don't know, I'm kind of getting the impression they're saying like a lot less than that potentially. Bam, like, you know, 75 K, but then give him like 15%. But I don't know if your friend goes for that. Right? Because it's like, I don't know, like once you're making 200 grand a year, most people's expenses rise to meet their income.
Peter: Right. And it's really hard to start making those cuts, right? It's like Jonny can't go to private school anymore. He got to sell the Tesla, you know, like, he suddenly became real house. Poor, right? Especially if they're not like. So if they're not like, plowing away lots of money into the savings account. Right.
Jon: Or for sure. Now, before we show this next one, let me double check to make sure I'm allowed to share this individual's name. So this next one, I'm not sure I'm looking at the text messages. I don't know if I've got implicit consent.
Peter: We don't have to talk about sign.
Jon: So we're we're just going to go through some kind of some of the points that this individual shared. So this this individual runs a syndicate they help. So typically what happens is someone will raise a VC round and then he gets a syndicate of if sit around a million that he tries to raise another $200,000, maybe 20% of the fund that goes in through a single LLC investment to the company.
Jon: And that's what he does. He's probably done both.
Peter: Or he basically just goes out and pulls a bunch of money from, you know, smaller angels and five, you know.
Jon: K 50 X.
Peter: Yeah. Into one vehicle and then invests alongside other VCs.
Jon: Yeah. Okay. So his point of was he thought 150 K in salary seems seemed a little high.
Peter: Yeah.
Jon: And I would, I would agree with him on this. I think this is one of the best. But besides Jon Richards, one of the best well written responses he got.
Peter: Yeah.
Jon: And his main point is, is you need the cash to last more than eight months. I think it's going to be they raised a once. I think it'll be hard for the startup to raise twice. Yeah.
Peter: Without like really good traction right. They need to go from I mean realistically they probably need to minimum ten X where they're at.
Jon: Okay. It's also interesting that this individual said don't give the person more than 8% equity. Is the CTO for the next. Is this the CTO that you're going to want for the next five years? And if so, he thinks that individual could ask for 8% equity.
Peter: As much as 8%.
Jon: But it's all again down to negotiations. I think those are the big parts. But we'll put like the screen conversation chat here so they can pause and read the whole thing.
Peter: Yeah. You know, honestly, like I would be pushing for like a little bit higher, but I don't know, it's a little tricky. My, my thought process would be, I want somebody that's like in the trenches alongside me and like, you know, making some sacrifices, but also going to like, you know, they're going to win. I'm going to win.
Peter: We're all going to win because we're all going to win. You know what I mean? Like, we're all on we're all equally aligned. So I feel like 8% might be a little bit low. But I also think 150 is a little is definitely high.
Jon: Yeah, I'd like to see the CTO take the 70 to 120, which I don't know if is even possible.
Peter: 70 to 120.
Jon: Four Their annual salary.
Peter: Somewhere in that range? Yeah. And equity. Equity.
Jon: I mean, depending how much they're taking, 3 to 15%.
Peter: Okay. So you think that 8% is pretty reasonable?
Jon: I mean, yeah, I mean, again, it's perspective. One of the things I noticed as I was talking to people is that VCs and investors typically give gave higher numbers. Yeah. And founders were saying give like three or 5% typically.
Peter: Don't give anything away. It's yours. Yeah, that's fair. You also have to remember, too, that like this is going to be this is not going to be all paid out at once. Right. This is going to be vested over time. So part of me is also looking at this as thinking like, look, yeah, maybe you give like 10%, but it's going to vest over five years.
Peter: So really they're getting 2% today. And if they don't perform, then getting the other eight right or whatever it might be true, true, true. And if they do perform, then you'll be thrilled to give them ten, because they will they will have been pivotal in helping your company succeed, right?
Jon: All right. Next one. This one is they're anonymous. This founder just raised about 1.5 to 2 million. So he said the salary of 150 K, he thought was fine, but that the founder should only get half a percent to 1%.
Peter: Not the founder of the.
Jon: C, So. So the CTO.
Peter: Yeah. I mean, I feel like.
Jon: I think that was way, way I mean, again, I.
Peter: Think that's fine, but that feels like you're hiring a CTO to series B or series C stage and this is like pretty seed stage.
Jon: Yeah. So I definitely think the equity's definitely a low, but again.
Peter: It is kind of high.
Jon: It also depends on how competent of a CTO do you need.
Peter: Yeah. So again, and like where's the product, right. Like did you just like hacked together an MPV but now you need like a really scalable business product, right? To go sell which case and you don't really have anyone else on the team that can do that and you need them to build it, then that could be super valuable.
Peter: But if you're just looking for somebody to like take what's there and, you know, add on to it and refine it and deal with some bugs and manage and people like that's the kind of CTO that's getting paid, you know, half a percent to a percent an equity in my opinion.
Jon: Okay, This next person is a local angel. Again, we're going to keep his name confidential. He said he would give 1 to 3% in the 1%, Three 2% range.
Peter: Yeah. And that 10% would I think this is you know, I know this individual and he he's got some data sets that he's working off of. I think knowing what I know about those data sets is my guess is that they are biased towards later stage rounds again because it's you don't need a quote unquote CTO.
Peter: Right. Until you're like much further this is like the CFO discussion, like when do you hire a CFO? Do you hire them at the seed stage now? Do you? I am in the series eight now. Do you have a series B? Probably not. Right. When you get to like series C, that's when you buy hire a CFO, because up until then you can get away with part time CFOs and a VP of Finance, right?
Peter: Or an A, and then a controller. and I think I think about CTOs in a similar bucket, right? It's like you need someone to come in and like help architect things and also someone to come in and help manage and hire and like all of those things. That's what a CTO does. But you're usually not there until much later when you're C when your seed stage like you just you need someone that's going to be like, they're in the trenches building, right?
Peter: Taking care of bugs and like doing everything right technical co-founder type role. And that person is probably not the right person when you get to the series C stage, right? Usually what you see is unless that person is just incredible, usually they're going to kind of move laterally or kind of down or whatever and really focus on what they do best, which is like coding and building, not necessarily hiring and managing and architecting, right?
Jon: Correct. And I think that's one of the big mistakes that a lot of startups make, is they're like, this person is the CEO, this person's the CTO, this person's the, and they give them titles that then pigeonhole them in to a to being unable to replace them without offending someone. Yeah, and maybe some would be offended. Hey I'm a the VP of VP of product and now you're bringing in a CTO you know that might or you know, VP of development and now you're bringing a CTO and you're not choosing me.
Jon: They may be upset anyways, but I think it's one thing to strip a title and it's another thing to not give them the title.
Peter: Yeah, but then again, you can use titles as, you know, title inflation.
Jon: Yeah. As a.
Peter: Way out. Right.
Jon: Which is what incentive this individual wants. Like Jon I want to be a founder do founder shares mean anything different from regular shares? What's what's happening? I'm like, no shares or shares.
Peter: Shares of shares. Well, I mean there are certain cases where founder shares may be different, but for the most part for.
Jon: Taxation and things.
Peter: Like that. Well, or more for control.
Jon: Okay, that's true.
Peter: But look, if he wants to be a founder man at this stage, there's no way he can go in demanding 150. Okay. In my opinion.
Jon: Okay. All right.
Peter: Next question is, you've never been a CTO before or because that means like he's not going to be that that instrumental in helping raise additional capital either.
Jon: All right. The next one out, though. Do you know Alden?
Peter: Yeah.
Jon: What can we say about All done.
Peter: Mr..
Jon: Quilts? Mr. Quilts, Missouri Star Quilt Co. Yep. Did Alice a billionaire yet?
Peter: I don't know. I don't think so. I think ALS very smart, though. Super got a new he's got a new little venture going.
Jon: I know he says he'll have to come on the podcast soon.
Peter: Yeah let's do it Let's bring him on.
Jon: All right are there let me let you scan through this and we'll pause and then we'll let you talk about this one. Z okay.
Peter: All right. So Al is basically saying he would do 150 plus some equity that feels reasonable with only a million. I might be looking for six months or X milestones at 80 K and a large slice of equity just to help us stretch. And that really like, you know, you've only got these two levers of equity and salary, which I actually don't necessarily agree with.
Peter: I think I think there are some more levers that you can play with. But but generally, yeah, those are the two big ones, right? And yeah, maybe. Maybe he starts with a reduced salary. Yeah. I mean, I don't, I don't really disagree. Right. I think, I think he's in line with kind of some of the other stuff.
Peter: I mean he's saying that like 150 plus equity is reasonable, but I think he's thinking that equity is probably pretty small. I could be wrong. I mean, he doesn't actually say here. I do like some of his other ideas, though, which is like, Hey, let's play around with these levers, right? We don't have to go like all the Way One Direction or all the other, other way or the other.
Peter: Like maybe what we do is we say, Hey, for the next six months we're going to just pay with some equity and a little bit of cash, right? To help us stretch. Or maybe we'll pay you 75 now, but as soon as we close in the next round, we'll bump up to 150 or 200, Right.
Jon: Or hit certain sales goals. Hey, guys, you're saying five K Now when we get to 20 or 30,000, more are.
Peter: More bumpy up, right? Yeah. So I think that's kind of an interesting way to approach it. yeah, I think one of the challenges too and, and I don't know, I'm kind of reading a lot between the lines a little bit here is that this feels like Al is saying, Hey, look, if you're going to go just hire somebody, then, yeah, sure.
Peter: Like 150 feels reasonable for a full stack developer to hire them and kick them some equity. But if you want like a co-founder, that's a very different conversation in my opinion. Right. And I, I think that's what the company kind of wants. I wouldn't be surprised if the company threw it back on like asked him to come and approached them because they're like, How badly does this guy want it?
Peter: Does he want a job or does he want to be a founder? Right. And if he really is, like, passionate and he's got high conviction about, like, what we're building, what we're doing, then he would come back and he would, like, come in for a low salary or no salary and lots of equity because he's a huge believer.
Peter: Like I have a friend, his company, he's got like two or three people that work for like nothing in some cases like one full stack developer. I think that literally works for nothing, just equity, right? That's super high conviction. Right? And like, he loves that, right? Because the guy is like in the trenches right alongside him because my my friend is also not taking a salary out of this business.
Peter: Right. And that CTO or technical co-founder is like a real founder. Right. And I think that's very different from just like, we're just going to hire somebody. I don't know. What do you think? You're the entrepreneur. You've been there, right? But would you rather have?
Jon: I'd rather have someone not taking a salary or like doing, you know, But would you.
Peter: Be willing to give them, like, you know, 20 to 30%? Depends on what.
Jon: It depends on their background. It depends if we'd work together previously.
Peter: Yeah. So if they're good and you like and you like each other, you can work together. You got chemistry.
Jon: I mean chemistry. So this, this is a slight detour, but startups are lonely. Yeah, very lonely. And someone they said I was texting someone today and they said the next time they do a startup, you know, they, they want to start it. So they have like the lion's share.
Jon: And I made the comment because I've typically been like a solo founder and I'm like solo founder, Ship is lonely. Like, I'd rather have someone that my friend that I'm friends with, that I'm in the trenches with.
Peter: Sure.
Jon: That I can have that camaraderie. Like, I feel like I get that here kind of on the podcast a little, even though we're like, you know, we for like twice a month. But like in startup plan, it's just it's just lonely.
Peter: Yeah, yeah.
Jon: It's all in my head.
Peter: Yeah, the winds are great, right?
Jon: But, but you know, so it's what percentage of the pie right. Is bringing, bringing someone on and giving up. Ten, 20, 30, 50, 60%. What does that actually do for your remainder?
Peter: Yeah, I know. I look at it like would I rather own a bigger piece of a smaller pie or a pie that takes a long time to fully realize or what I rather on a smaller piece of a much, much bigger pie that I get to enjoy a lot sooner. And for me, I think I think I'd rather have the latter.
Peter: Like I feel like I'd rather have a smaller piece but build something really big and meaningful and do it very relatively quickly, not take 20 years to build the business. Right.
Jon: It's a lot of lot that goes into a startup.
Peter: Yeah. Is at the end of the day you're your most valuable resources, your time, right? I mean it's kind of cliche, but but it's true, right?
Jon: We all have so much time in startup land. Yeah, I think this one, the lessons I learned about doing Tiny Torches, I bootstrapped. It probably could have gone on, actually. Yes. I rejected funding. Yeah. Which seemed like an actual legitimate like offer.
Jon: But you know, my trade off was I spent four years bootstrapping that in the market slash Facebook, turned off the APIs and it killed us.
Peter: Yeah. Do you think you would have survived if she had raised money?
Jon: I think if we raised money, we were trying to diversify the risk and we were looking to build complementary features at that point where we started around similar times as Canva. Yeah, and Canva raised and we didn't. Yeah, I don't think Canva would ever seen us as a competitor, but like, that was the area we wanted to go to.
Peter: You wanted to get there?
Jon: Yeah, because we didn't raise. We just could never keep up.
Peter: Yeah, but I mean, even like Buffer because you were pretty similar to Buffer to, like, they're still around. We were.
Jon: Looking at doing like a combo having scheduling and design built in.
Peter: Right?
Jon: So you could just design publish. Yeah, we were more of like a digital asset management tool and the way we could publish that was just adding the, you know, the layered editor to the content creation tools on it. Yeah, the collaboration pieces.
Peter: Yeah. Interesting.
Jon: But that, that business died. All right. Jared Rodman, he gave me the thumbs up so we can say his name. A he is a founder of we've took a company public. He's saying regardless, give them 5 to 20%.
Peter: Right. Given them now make an array and a million raise a small revenues. Small team is small.
Jon: But giving up 20% I think would be tricky because the the investor might have 20 or 30%. Right. Yeah.
Peter: I mean we did we did our math right. Like a assuming generous like, you know, 20% ownership.
Jon: Yeah.
Peter: So founder you know, assuming that they haven't given up any ownership to anybody else, then they're going to, you know, check another 20%. Now they're down to 60%.
Jon: And there's a couple other people at the startup already, which means the make world, they're.
Peter: Like 50%. Yeah. Which is tough at this stage for sure.
Jon: Yeah. He's saying 5 to 20%. The last one is a recruiter, which the things that Craig said totally blew my mind. I've never heard this but totally could be market. But I would be surprised. So I think the thing that surprised me is he says.
Peter: Don't take the.
Jon: Haircut. He says, give 135,000 and then of the equity you give them, allow them to vest 30 to 50% immediately. And I wanted to yell treason.
Peter: Why?
Jon: I think equity is a thing that's earned. And I don't know, especially in this size, someone who someone who could walk away with two or 3% after a few months would will forever affect your startup in your ability to raise may forever affect you.
Peter: Yeah I mean that's fair. But at the same time it's kind of like higher fat or higher slow fire fast. He's taking it So, so far. I think what's interesting is we're kind of approaching it from like the startup perspective. Right. Like, if you're the startup, what would you accept? And he's taking it from the angle of, like, if you're going to leave your cushy job for 200, like, and take all this risk, what should you be willing to, you know, take?
Peter: And, I think that's why he's saying don't, don't, don't, don't skimp on your salary. Right. Get paid what you're worth. Because the saying your equity is probably not going to be worth anything.
Jon: Yeah. So if that's the case, totally. See that angel 175 K that's only it you know.
Peter: 25 K Well plus as other 5075 K worth of total comp sacrifice like a.
Jon: 12% pay cut.
Peter: And he's saying, he's saying a you should argue really hard that 3030 to 50% vest immediately so that you don't get canned at month 11.
Jon: Which is another podcast that we'll be doing shortly.
Peter: Sweet.
Jon: So yeah, I was a when I saw this one, I got angry like I hate this one vesting immediately. It's going to mess up the captain.
Peter: Yeah, that's crazy. So snap snapchat, right? their vesting schedule was like zero ful cliff at five years.
Jon: wow.
Peter: So, like, you're there grinding for four, four years, four and a half years or whatever, and like, you get canned or you leave or whatever. Nothing. You get nothing.
Jon: Have vesting schedules changed over time? Are they because they were? For years, I have heard some people say that they're six years with a two year cliff.
Peter: Well, I don't know. They're kind of all over the place. I think. I think standard is still kind of like, you know, four years, quarterly cliffs. So.
Jon: You know, you mean quarterly vesting with exercise?
Peter: Our quarterly vesting with with annual cliffs. So I was just thinking, you know, every every four years or every year for four.
Jon: Years, and the last one would be our friend Yogo. He said we could share his name. He's with album V.C. and he said he'd probably give away 3 to 10%. And in the past we've asked him like, Hey, what would be a good Kto? Would He hasn't seen this, What's a good Kto paycheck? And he said 150 K Yeah.
Jon: It'd probably get us out of all of them. So in my conclusion, I would probably say if I had a pick, something you're making 150 K probably 5 to 7 is probably where I target personally.
Peter: Yeah. I think I think 150 plus 5 to 7 is like totally reasonable for somebody you're hiring at this stage. And for him like that's enough equity that it's like meaningful and enough pay that you're not taking too much risk and yeah, I think it's fair, but I think you're getting, you're getting higher. You're not getting a founder.
Peter: Right.
Jon: Very, very potential potentially. So anyways.
Peter: That was here's a question like, let's say this was you. How much would this change? Like what they ended up offering you? How much would this change? Like your view and how hard you'd work and all of those things like does it do do these things like change your behavior or not?
Jon: I'm in a very different camp, so this I don't know how to answer that. Like I'm, I'm like an all or nothing. I'm it.
Peter: So if I came to you, I'm like, Jon, I believe in I need you for my new startup and you could add a ton of value and here are your options. You can make 150 K and like 7% equity vesting over four years, blah, blah, blah or, or I'll give you 25% of the business, but I'm only going to pay you like two grand a month or something.
Peter: What do you take?
Jon: I mean, the 25% would be more appealing to me by the way I'm wired. Yeah, but I would just say, based upon what I'm doing to code base, it'd be a bad offer.
Peter: Yeah, but you don't know my idea. My, it is, like, huge. It's going to like, change the world. Like.
Jon: I mean, like, we're.
Peter: Going to be then we're going to disrupt Google.
Jon: Like, ideas that are like, what would I leave code base for? Yeah, like, I mean, like the one that I thought was pretty cool lately was Jerry, you know? Jerry Yeah. And laundry. Yeah, they do like, they're like Uber for laundry. Yeah. And I think their idea is awesome. I think the amount of traction they've got in the first year is awesome.
Jon: And I think, I think part of it I just get I get lonely sometimes as a founder, okay? Because it's very difficult to talk to you when you got a phone or you could talk on a different level.
Peter: Yeah, yeah, yeah. It's hard to find people that empathize. That can empathize, right. Because we were.
Jon: Having a discussion between my business partner here at Code Base and an employee last night, and he's like, Why are we doing these things? That code base? It doesn't make sense. I feel a little micromanaged. You know, when I first started, there was like, like ten people. Now we're at 40 plus. And he's like, We didn't do any of these things.
Jon: And so we had then walked him through and said, Hey, these are things that are happening. And this is when, you know, like if a client were to downsize, often you guys have no idea. You just think you switch projects, right? But you don't realize, like code base may have been subsidizing your salary. You know, like the Earth was like flying apart.
Jon: And code base just made this very nice, smooth story for you.
Peter: Right.
Jon: And you can't share that with employees.
Peter: Right? Right now, it is. It's totally lonely, right. And even if you have a co-founder, that doesn't always mean that it's still not lonely.
Jon: And I think it's also it's tricky to find people who can compete at the same level. Sure. And then and then also it's also like you also just have like a lot of sunk costs. But in our mindset, costs are big. Yeah. So it matter how much time I've spent a ton of time on code base, I've spent a lot of time on appointment and switching is like getting, I don't know, given up your baby.
Peter: I think though, like you make a good point in that like, Hey, you've got something right now that's like real solid revenue, blah, blah, blah. And if you're going to be a founder, you kind of have to be a little crazy. Right. And that's why, you know, there aren't a lot of founders at the end of the day that are like, end up being successful.
Peter: And, you know, because I think I think the really bright, rational people, like, they go pursue, like, traditional standard careers, you know, that's like, be a doctor, be a lawyer, be an investment banker, or do private equity. Right. Like, do management consulting, whatever it is, if you're really bright. But like, it's the crazies that are like, Hey, I'm really smart or smart enough and I'm going to take this insane risk that is totally irrational.
Peter: I'm going to go without a salary. But I want I want third of the business, right? And I'm going to go like full, full steam to build this thing is something big and most likely they're going to fail. But like when they hit it big and they succeed, then it becomes like a massive success, right? And then everybody's like, well, it's obvious that Google would be one day like this huge thing.
Peter: And, you know, it's not fair that Larry's worth, you know, like $100 billion. Right? But it's like, well, how many and how many other crazy people were willing to take those, right?
Jon: Definitely. I mean, yeah. So I think for me either like to be the humble dictator and I'd like to assume I'm humble. I could be. I'm not.
Peter: Humble, benevolent dictator or maybe benevolent or.
Jon: I would be that see, like the 10 to 30%, right? Yeah. In order to get to get knocked off. And if I don't if there's not a benevolent dictator out there at a startup and someone was trying to recruit me, I would never join probably.
Peter: Yeah. All right. That's politics. The stuff's interesting. Hopefully this was helpful to you as you're trying to figure out, you know, what do you comp your co-founder? Where do you come that CTO or or technical hire you need to make? What do you think? Send us send us thoughts in the comments. Yeah.
Jon: Are we greedy?
Peter: Are we way off base? We're too.
Jon: Generous. Let us know. Leave in the comments below. Go to venture capital firm. All right, guys, thanks for watching and we will catch you on our next episode.
Peter: So yeah.