Equity for a CEO in a startup
Jeff
9 Comments
Toby wrote:
I have been offered the role (with a euphemistic ring!) of CEO of a new startup - I will also be the sole employee to begin with...
I have not yet developed a clear business model, but there is one complexity I am unclear on.
I have been offered an immediate salary $70k (~50% of my current salary as a professional) and a 5% equity stake. We're still talking in loose terms, but I was guaranteed that this would be 5% AFTER two rounds of capital raising (small seed, and then second round IF pilot is successful). 5% is also on a 'vested' employee share type arrangement (although I may suggest your "founder's shares" idea).
Can you explain how we are to compare salary to equity in a start-up context (My intuition was that the salary was higher than I would expect a small VC backed startup could offer, but the equity lower, given I will be the sole initial worker, and to be honest, very well qualified)?
Well, there is really no "standard" that we have to go off of, although the concept of being "guaranteed 5% after two rounds" is a bit odd, because it's usually the job of the CEO to secure and negotiate those rounds of funding. I would rather see you get a larger percentage now, that, according to plan, would have you end up at 5% after those rounds. If you end up getting a higher valuation for the company because of performance between now and then, you have a clear reward (less dilution) for your efforts. If you under perform but still need the money, you'd have the obvious penalty. Also, if you somehow end up in an interesting situation before raising those two rounds (an early buyout opportunity), you should not get penalized for that by having less equity rather than more.
That said, I have to ask where the other 95% equity ends up. You said you're the only employee - which implies that investors own 95% of the company? Is that right? The arrangement in that regard seems very odd. I'd be happy to provide some more opinion if I had more detail around the overall business plan, financial backing, and equity structure.
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