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My question/story is this: two years ago I broke ground on a startup. We planned and planned, raised some funds and broke ground writing code. Two years later we put $250k into the business, have some good people involved, have some revenue (less than $10k), and about 4,500 users. We have a couple proposals out to some F500 companies, and if we close them we'll be off to the races.

I have been Founder & CEO (and every other position in the book) during this time period, and recently, a CFO/COO of another large software company wants to get involved as CEO. He has experience and connections and grew his other software company to $40mm/year biz.

This is our offer, is it fair?

2% up front, 8% vested out over 4 years. The equity vests on company/fundraising milestones. He'd be paid $8k/mo when we raise $500k, and 6 months later we would discuss a raise if all is going well.

Please let me know, I have no idea.

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6  
anything upfront is ALWAYS dangerous. – frenchie Aug 2 '12 at 13:47
@frenchie - +1 cannot agree more. – jimg Aug 2 '12 at 14:29

2 Answers

up vote 6 down vote

Of note: an experienced large company person may not have the correct skillset to run a startup. I know some may disagree, but it is one thing to have a staff / secretary / expense account, and quite another to have to sweep the floors before you leave the building every night (because no one else will do it).

I would take a look at the vesting - any reason why a 1 year cliff isn't in place? Performance vested and Performance accelerated vesting are considerations - but you may want to keep these incentive type programs separate and distinct from the standard options. Repurchase agreement and double-trigger clauses should also be spelled out.

I would also be wary of issuing shares at the start - it's risky, since you likely don't know if things are going to work out - and if it doesn't, then you have an non-participant with 2% ownership.

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Sorry I wasn't clear in my question. He wants to be CEO, not CFO/COO. – webwrks Aug 2 '12 at 17:02
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@webwrks - edited your question to reflect this. My answer still stands - with the addition that I would be more specific goals need to be achieved @ 6 months, and what would be the outcome. Leaving it open ended can set wrong expectations. – jimg Aug 2 '12 at 17:08
up vote 1 down vote

So You are NOT paying this person who you think has the potential to run your company anything until it raises $500k. Why would he/she do that? Who is taking all the risk here. You or the prospective CEO. If he or she is as capable as you believe then they must be putting a hold on other avenues that they could travel.

The offering for a position that has a guaranteed salary and then offering shares is a lot different that offering a person a position with no salary and no guarantee. I wouldn't touch it for your offering.

And I agree with jimg. A start up CEO is much different than an an expansion CEO. Start up CEO generally would have a lower cash position but a higher equity position. An expansion CEO would generally have a higher cash position and less equity.

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