Forums: Discussions for entrepreneurs and small business.

Hi - New member, and I look forward to utilizing this site A LOT in the near future.

I've seen postings similar to my question, but mine differs just a bit...here it goes:

I currently work at a start-up as VP of Product.    Our founders have deep experience in the start-up world; last company which they sold had over $100M in annual revenue.

I've been working on an idea for the past four months, and I'm moving forward in the next month targeting to raise $60k pre-seed funding to try to "prove my concept" and put me in a position to seek additional investment for growth, if successful.   I'm confident in my ability to lead all aspects of the initial development, except for the tech side.  The $60k will mainly go to web development, hosting and support.

Our CTO, one of the founders, has offered to help me.     I've met with him 2 times during my opportunity analysis, and he is very keen on my concept and further helping me.    So now it comes my question:   what % equity should I offer him?   His input and advice is definitely required for me to progress further.   I'm thinking around 2% equity which, in my mind, would require him to help me with designing the architecture, act as tech rep on partner calls, and provide additional advice.   Is this enough to make him interested and obligated, yet not feel like I'm stiffing him?  I would consider him a friend, so I don't want this to disrupt our relationship.

Any advice is appreciated.   Many thanks!

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The fair way (in my mind) would be to objectively value your CTO friends services and also value the opportunity. Since your value is zero right now, I would be temped to use a valuation based on the NPV of worst case cash flows for the first 3 years and then offer a share of equity based on the ratio of the value of your CTO services to that company valuation.

At least by doing this you will not be quite so obviously plucking a number out of the air and further you demonstrate to your friend that you fairly value their input. Whatever the answer it will give you a baseline for negotiating your friends contribution to company value.  If the number is not 2% but closer to 50% then you should get comfortable with the concept that 50% of something is better than 100% of nothing.

All advice worth what you paid.

Good luck.

Bearlo

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