I'd appreciate any good practices and things to make sure I do in an agreement like this.
A few points:
– I have taken all of the risks so far and I am the only employee currently. I have been the one that has gained the traction and I have invested my savings into the company, savings I mainly used to pay him to create the app initially.
– I expect the company to grow a lot in the next few years so equity could be quite valuable assuming an exit in 6-8 years.
– I also will likely need investment if I am to employ more people, which this company needs to scale up properly, but if I give away 30% to a CTO that doesn't look good when trying to get investment (usually investors will ask for 20%+), and I don't want to end up with only 50%.
– I would prefer to get investment and then just give him a basic salary and a very small equity stake. The problem with this is getting investment takes a long time and while I'm trying to come up with some kind of deal, the business is stagnant as he's not working on anything because I can't afford the inflated prices he's now suggesting if I don't give him equity. At the same time finding another dev would be very hard at this stage as it's a complex app with a lot of code.
– He has built the app, but to this point I have been paying him as a contractor, so he has taken no real risk, apart from missing out on some bigger contracts as he offered me a discounted rate based on me committing to him for a long term contract. But this is pretty normal and I don't think represents risk.
– He is a talented developer with a lot of potential and also for a software guy has a good business mind, which is valuable.
– The downside to this huge potential is that I don't expect him to stick around until exit, so I want to make sure I don't give away 10% of my company to someone who will leave in 2 years.
Maybe it could be a potential of milestone and time based vesting? Does anyone have any good tips for coming up with a good equity deal without too much risk?
Any help would be greatly appreciated!
submitted by /u/LiquidFootballAha
Startups – Rapid Growth and Innovation is in Our Very Nature!