This question originally appeared on CoFoundersLab: Salaries for Technical Co-Founders - When to Pay and How Much?
Answer from Tim Kilroy, CEO, AdChemix, and Managing Director at GreyLady Capital
Let's not over-romanticize the "no salary" idea. Generally, foregoing salary is NOT a mandatory exchange for significant equity. But in a pre-revenue/pre-funding start-up, this can can boil down to a more simple question: Can you afford to pay this person what they need to be paid so that they can work for you? In this environment, no one gets paid for the work they do; they get paid so that they can do their work.
So, if your CTO candidate is a plus player who can drive your business to where it needs to go, and can assume risk and leadership roles, then pay this candidate a salary and give them the necessary equity to insure their involvement. There is no formula that says “If I pay you $100,000, then you can only have 13% equity. But if I pay you nothing, then you get 29%.” That isn't a real thing.
You need to focus on what this person brings to your business right now. If they are the right person, then what you pay them is relatively meaningless because they will make your business work. Think of it this way: What would you do if you didn't hire this candidate? How much more would it cost you in time and dollars to find an equal or better replacement? Delay can be the real cost.
The real currency of young companies isn't equity or cash; it’s opportunity. That is what your team and investors buy into. Delay kills opportunity. If you have the cash to hire the right person, then you should do so. Sure, you can fiddle with equity, but cash is the price you pay to make YOUR equity worth something.
I know that there is a fetish around equity. If you’re a founder, you might think that you must have it all. That is small thinking. Be generous with equity, because it means more people share your dream (and your currency) of opportunity.