We just shortlisted a Tech Cofounder on our Early stage Self funded Tech Marketplace startup.Hes good on the skill set but we are not sure yet on the ‘compatibility’ part- which we are counting on as very important as well for the core team.
Whats the Best way to go forward with this: testing the ‘compatibility’ with salary for say 2-3 months before handing equities or straight away giving out equities?
Affordability shouldn’t be an issue since we are highly particular on selection of the core team.
You use the title co-founder, which indicates a partnership and mandates that the tech hire (I'm assuming is the CTO) be provided with the perks and benefits of other co-founders. If you are using the term co-founder loosely and there is no formal co-founder designation in place, then wait 6 months to a year. Why? The tech hire was not part of the original team and equity is ownership. If you give equity it is highly expensive to buyout (think divorce settlement without a pre-nup). If you do give equity to this employee be sure to have a solid attorney draft the agreement.
Hello I am Priyanka.
To understand this you have to go in detail.
Determining the Bottom of the Scale
So now you know the most you'll pay. The next step is to figure out the least you'll pay. And that's where the market comes in. Market rates set candidates' expectations. Sometimes, the market underprices value. Truly excellent knowledge workers do ten times the work of merely good ones, but they're only paid 20 to 30 percent more.
Deciding How You'll Pay
So once you know what the job is worth and what your candidates will expect, you've got to decide how you'll pay. Will you offer a fixed salary or hourly pay? Sometimes the choice is yours, but often, there's a common perception among employees that certain positions will pay one way or the other.
Protect equity state
You’ll want to have an attorney review all your funding documents so that you understand what you actually own and what you’re sharing. While each round of investment presents a new valuation, you’ll need to ensure that there are minimal - if any - restrictions on your equity, such as vesting periods that give you less than what you might think you own.
Further queries consult me.
We have hired a lot at our company and for higher level positions often the best way to structure this is by using a "vested" equity structure.
Your main goal is to determine if this person the best fit for our company now and long-term. This structure allows you to do this and limits your risk profile of hiring the wrong person and giving away too much equity.
An example might be structuring a deal where X new hire gets X in equity but it is vested over time. You can also put in the contract that if X person leaves before let's say a year they are entitled to no equity.
A year is often a great time frame to ensure you have the right person and they are committed.
Hope this helps
Small salary (if possible) shows commitment, and then you do 4 yrs vesting schedule where they earn the equity monthly. You can do a big grant of equity after 12 months of work
A better approach is to structure a reverse vesting agreement. Its more of a win-win for you and him from a tax basis if he ever sells the equity he acquired and allows you to buy back his equity at cost if he is ever fired
There's a standard solution here: 4 year vesting schedule, 1 year cliff, so he gets zero equity until 1 year in. Any other arrangements would likely be out-of-market and would not be viewed favorably by future investors. Happy to discuss further.