Loading...
Answers
MenuWas offered to join a young startup as the CEO. How much equity should I ask for?
The startup has not been incorporated yet. It has 2 non technical- and non business-oriented co founders who thought of the original idea. They got government non-diluting grant of $50k, and they used it to develop a technological POC (paid to developrs), and submit a provisional documentation for a patent. They are looking for a CEO and a CTO to take it to the next stage (seed round, and getting to product-market fit). They will continue contributing to the company, but have no distinct role in its next phase.
I have an experience of beening the the co founder and the CEO of a funded company.
Answers
Some questions you'll want to answer before moving ahead:
How strongly do you believe this idea can become a successful product?
Why do you think they approached you?
How comfortable do you feel running a company owned by someone else?
What happened in your previous CEO role?
What confidence level do you have in the founders?
I personally wouldn't take on such a role, because there's no way I would ever run a company I didn't own. Too much blood, sweat and tears need to be put in for the return of a salaried payoff. I know you're asking about equity but are they even open to giving you some? Around 20% is the minimum, one-third feels right. They're never going to give you more unless they are crazy or totally inexperienced.
And they are probably going to want to keep some aside for the CTO.
You do not want a failure under your belt so make sure this is a winner before you consider taking it on. The fact that they don't have a viable product with customers already sold to concerns me greatly.
The short, sweet answer is advice I got from a mentor: talk it out until you're all happy. But I would caution against joining a company with founders who want to be involved "but have no distinct role in its next phase." If as CEO you're helping the company to grow and creating a lot of value, you may come to resent the fact that you only got 1/3 (or 1/4) of the pie. Clearly defined job descriptions (and a new vesting schedule with a cliff for the original founders) can ensure that everybody stays hungry and works hard to make the company profitable.
Unless you are sure the company will be successful, don't do it. Everyone and their mother has a "groundbreaking startup" nowadays. Even 50% of $0 ends up being nothing. Don't get blinded by being "CEO of a startup." Always take a step back and look at it for what it is.
If you ARE sure of the product, it really depends on what you're bringing to the table.
Related Questions
-
What are digital products or services you wish existed and why? How would they help you and/or your business?
As the owner of a web development firm, I am always inventing our own digital products and services. Any service that is web-based and accessible to mobile devices work as long as they solve a business need. The digital products I wish would exist are: 1. Home building services including videos by experienced builders 2. Mail and package weighing digital services 3. More security services for document transfer services. BruceBC
-
What is a better title for a startup head....Founder or CEO? Are there any pros/cons to certain titles?
The previous answers given here are great, but I've copied a trick from legendary investor Monish Pabrai that I've used in previous startups that seems to work wonders -- especially if your company does direct B2B sales. Many Founders/ CEOs are hung up on having the Founder/ CEO/ President title. As others have mentioned, those titles have become somewhat devalued in today's world -- especially if you are in a sales meeting with a large organization. Many purchasing agents at large organizations are bombarded by Founders/ CEOs/ Presidents visiting them all day. This conveys the image that a) your company is relatively small (the CEO of GM never personally sells you a car) and b) you are probably the most knowledgeable person in the organization about your product, but once you land the account the client company will mostly be dealing with newly hired second level staff. Monish recommends that Founder/ CEOs hand out a business card that has the title "Head of Sales" or "VP of Sales". By working in the Head of Sales role, and by your ability to speak knowledgeably about the product, you will convey the message that a) every person in the organization is very knowledgeable about the ins and outs of the product (even the sales guys) and b) you will personally be available to answer the client's questions over the long run. I've used this effectively many times myself.VR
-
VCs: What are some pitch deck pet peeves?
Avoid buzzwords: - every founder thinks their idea is disruptive/revolutionary - every founder says their financial projections are conservative Instead: - explain your validation & customer traction - explain the assumptions underlying your projections Avoid: - focusing extensively on the product/technology rather than on the business - misunderstanding the purpose of financial projections; they exist in a pitch deck to: a) validate the founders understanding of running a business b) provide a sense of magnitude of the opportunity versus the amount of capital requested c) confirm the go-to-market strategy (nothing undermines a pitch faster than financial projections disconnected from the declared go-to-market approach) d) generally discredit you as someone who understands how to build a company; for instance we'll capture 10% of our market, 1% of China, etc. Top down financial projections get big laughs from investors after you leave the room. bonus) don't show 90% profit margins. Ever. Even if you'll actually have them. Ever. Instead: - avoid false precision by rounding all projections to nearest thousands ($000) - include # units / # subscribers / # customers above revenue line; this goes hand-in-hand with building a bottom up revenue model and implicitly reveals assumptions. Investors will determine if you are realistic, conservative, or out of your mind based largely on the customer acquisition numbers and your explanation of how they will be achieved. - highlight your assumptions & milestones on first customers, cash flow break even, and other customer acquisition and expense metrics that are relevant Avoid: - thinking about investor money as your money - approaching the pitch from your mindset (I need money); investors have to be skeptics, so understand their perspective. - bad investors; it's tempting to think that any money is good money. You can't get an investor to leave once they are in without Herculean efforts and costs (and if you're asking for money, you can't afford it). If you're not on the same page with an investor on how to run/grow the business, you'll regret every waking hour. Instead: - it's their money; tell them how you are going to utilize their money to make them more money - you're a founder, a true believer. Your mantra should be "de-risk, de-risk, de-risk". Perception of risk is the #1 reason an investor says no. Many are legitimate, but often enough it's simply a perception that could have been addressed. - beyond the pitch, make the conversation 2-way. Ask questions of the investor (you might learn awesome things or uncover problems) and talk to at least two other founders they invested in more than 6 months ago.JP
-
How much equity should I ask as a C-level executive in a new startup ?
As you may suspect, there really isn't a hard and fast answer. You can review averages to see that a CEO typically becomes a major shareholder in a startup, but your role and renumeration will be based on the perceived value you bring to the organization. You value someone's contribution through equity when you think that they will be able to add long-term benefits, you would prefer that they don't move company part way through the process, and to keep them from being enticed by a better salary (a reason for equity tied to a vesting arrangement). Another reason is when the company doesn't have salary money available but the potential is very strong. In this situation you should be especially diligent in your analysis because you will realize that even the best laid plans sometimes fall completely short. So to get the best mix, you have to be very real about the company's long-term growth potential, your role in achieving it, and the current liquidity necessary to run the operations. It should also be realized that equity needs to be distributed. You cannot distribute 110% and having your cap table recalculated such that your 5% turns into 1% in order to make room for the newly hired head of technology is rather demotivating for the team. Equity should be used to entice a valuable person to join, stay, and contribute. It should not be used in leu of salary that allows an employee to pay their bills. So, like a lot of questions, the answer is really, it depends. Analyzing the true picture of your long-term potential will allow you to more easily determine the correct mix.DH
-
A tech startup fully outsourced. What problems would be in this situation?
The ideal way would be to hire the engineer while the project is still under development. You and the engineer should follow up with the outsourced partner in the process. This will give hold to the engineer and later more staff can be trained in upgrading or follow on versions of the product/service.SM
the startups.com platform
Copyright © 2025 Startups.com. All rights reserved.