Myself and two partners are the business end of a new start up. We have been looking for a fourth and final co-founder, which would be our programmer. We found one that wants to be a part of what we are doing, and he sent over a preliminary contract offer. For the most part it seems pretty fair, but I do have a couple of questions, as I am new at this. The contract itself is four pages of mostly legal jargon, so I will cut and paste the parts that I have questions about and take out any names.
Owner agrees to compensate the developer under the following terms:
a. If funding, as described in Section A.6, is successfully obtained, regardless of the level of completion of the functional prototype, the owner agrees to:
i. Bring the developer on board as a co-owner of the business entity.
(My question: Why doesn't he just ask to be brought on as a co-founder now as that's what we we're offering? Why the preliminary contract?)
ii. Begin compensating the developer at an annual starting salary comparable to a private sector senior level software engineer. The exact amount of compensation will be agreed upon at the time funding is obtained, but the range based on current market rates would expect to be between $90,000 and $110,000.
(My question: I think this is a fair salary and I want him to be happy, but is this asking for too much in a seed round of funding? Shouldn't we, as co-founders, agree to all take a lesser salary...at least until we are profitable or in a VC round?)
iv. Provide “back pay” for the development of the functional prototype. The back pay would be based on the agreed upon salary pro-rated over the number of hours put in to developing the functional prototype.
(The developer as agreed to accept only future compensation to come at the time of funding. Is the above common practice, or is this asking for too much in a seed round of funding that may not be much?)
v. Provide up to a 20% ownership stake in the equity of the business entity in accordance with a vesting schedule. Details of the vesting schedule are yet to be determined, but it is understood to span about two years.
(Fair? Also, we would have a four year vesting...not two.)
Do these terms seem acceptable, or should we negotiate some of these terms? Thank you for your help and input. It is very appreciated.