Equity for co-founder/First employee (CTO)

My best friend and I paired up 3 months ago to work on a product. Since both of us had limited coding skills, we decided to outsource it to another service-based company to help us build our MVP while we would focus on customer development and team building. However, my partner had to leave midway due to personal reasons and I decided to continue bearing all the expenses and product development working alongside with the other company.

I was able to find a young developer who is very passionate, believes in the idea and is willing to work for equity. He graduated from MIT, Manipal in 2014 and has worked in another startup for nearly 1.5 years. He is expecting a compensation of 30% equity and Rs.20,000/month ($300 US, to cover for his expenses) and wants to take on the challenge of being the CTO.

Although I feel that he is inexperienced, I feel he can rise up to the challenge and have partnered up with him. Our MVP is almost ready and we will be launching our private beta in the next few weeks and I will be investing another 5 lacs into the company.What percentage of equity should I offer my partner?

  • I would offer 30% equity and 4LPA in salary, until the company becomes profitable. This means that if your company gets big he’ll get rich too, and that’s how it should be.

    If he’s good at his job his equity is certainly justified. If he’s bad at his job then you shouldn’t partner up with him at all.

  • Make sure there is a vesting schedule on that 30% in case it doesn’t work out. I would push for a 10 year vesting schedule and include a buy-sell agreement that gives you a right to buy him out if he leaves.

    • I agree with that, except for the 10 years vesting schedule. It’s way too long for the startup world. 4 or 5 years is fair. 10 years is not motivating because a brillant young engineer will never project himself into a so far future. He’s more probably expecting 2 or 3 years of hard work and ramen wages before becoming rich, so he can understand 4 or 5 years vesting schedule, not 10 years.

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