Lately, I’m seeing a ton of startups with no CTO. Instead, they have a team of engineers with minimal equity. This is a mistake. Here’s why…
Incentives Matter
Startups have to ship new features fast. That’s how they make customers happy and beat competitors.
Who do you think will do that better?
A) A great engineer who owns a large slice of the company and stands to make millions if it succeeds.
B) A great engineer working for a salary who makes pretty much the same no matter what happens.
Humans respond to incentives. A big slug of stock that can make you millions or even billions is a powerful incentive.
You want that key engineer working overtime for you. Stock is how you make that happen.
The Limits of Hired Help
“Francis, you don’t get it! My engineering team is amazing!”
I’m sure they are. But what happens if you run out of money?
Those people are gone, and you’re dead in the water. You can’t ship new features or even fix bugs.
A CTO could help you here. You guys could both reduce salaries or cut them to zero temporarily and try to get the business on even footing.
I’ve seen founders keep working even when their bank account is in the hundreds. But the only way someone will do that is for major equity.
Having a CTO makes your startup resilient. Give yourself every advantage you can!
How Much Should a CTO Own?
By now, I’m sure I’ve convinced you that you need a CTO. 🙂 So, how much should he own?
At the early stage, any co-founder should own at least 10% of the company. Anything less than that, and they’re a co-founder more in name than in reality.
Usually, any founder or employee will vest their stock over 4 years. So if your CTO doesn’t work out or doesn’t stick around, you won’t have given away too much.
Giving a CTO lots of equity means less ownership for you. But owning a smaller slice of a bigger pie is the way to go.
Wrap-Up
Building a startup is next to impossible. You need every single advantage you can get.
A great CTO is one of the strongest advantages there is. Don’t be shortsighted — get someone awesome and give them a big chunk of the company.
When you look back on it at the IPO, you’ll realize it was an incredible bargain.
Do you have a CTO? Do you look for a CTO in companies you invest in?
Leave a comment and let us know!
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