This episode documents real-time negotiations to bring on a CTO for LandPricer.AI after budget overruns threatened product launch. The proposed structure flipped typical startup equity arrangements (5% at launch instead of 20%, with remaining 15% vesting over two years) while front-loading a 20% revenue share to reduce founder risk if the CTO had to exit early due to financial constraints or other startup obligations.
Key Takeaways:
- Front-Load Rev Share, Back-Load Equity for New CTOs Offering 5% equity at product launch with 20% revenue share immediately (as if 20% was already vested) protects founder control if the CTO exits early while still providing strong financial incentive during critical early revenue periods.
- Vesting Schedules Protect Against Early Departures Two-year quarterly vesting for the remaining 15% equity ensures the CTO stays engaged long enough to prove stability, particularly critical when they have competing ventures and young family financial pressures that could force an exit.
- Revenue Matters Less Than Control for Strategic Pivots When building enterprise software with slow initial revenue ramps, retaining 95% ownership at launch enables aggressive pivots and additional partnerships without diluting decision-making authority (revenue share provides upside without governance complications).
This negotiation structure solves the classic startup problem of needing technical talent without sufficient cash while protecting founders from premature equity dilution—applicable beyond software to any partnership requiring specialized skills.
(Podcast transcript below)
Hi, Chris Duff over at Serious Land Capital, vacant land funding partner, recording a bit late today, was at the San Antonio Zoo with wife and two-year-old daughter and her grandma. It’s a lot of fun seeing the kids smile and actually seeing all the monkeys and so forth there
Never forgetting about coming back to share some updated news on RN. So I know I referenced the other day, just there was a lot more progress on like the partnership perspective from land Pricer. kind of the, situation here, which I’ll be updating over email for those of you who are looking for the product to have been released is, additional work.
needed to be done. was capped out over budget on the actual project. So I either needed to offer up equity for a, you know, technical, you know, a CTO to come in. losing my words here. Forgive the, maybe blame the sun here for wiping me out a little bit.
Or, you know, just another engineer that or an engineering team who would be willing to work for some ownership of the company, you know, vested, course, or potentially raising a small angel round to cover the anticipated cash costs to continue the project. Very fortunately, the primary project manager who I was working with, they were US based at the agency who had done all this engineering work. had, you know, six month history working together.
Um, was open to working for equity. So was, and you know, that would be the speediest way to solve the, um, the problem and be able to release the software since he was the most familiar with it. Uh, and you know, can get us set to, um, launch live, of course. And so, you know, I was trying to figure out, okay, what type of structure might work here? You know, I used to work in venture capital for a few years.
but it’s been a while, like well over five years ago at this point. so, you know, definitely more rusty when it comes to. You know, figuring out what type of ownership splits and how to structure that might make sense. So, you know, I went over to the trustee pro version of chat GPT and try to.
really dig in, figure out what a suggested setup might be that could still allow me to retain control. I’d already invested a lot of money, the marketing and so forth, the brand recognition was all gonna fall on me. So it was initially proposing like, okay, you can offer 10 to 20 % of the company, vested over four years, one year cliff, it’s pretty typical for a lot of VC type companies to be offered to the CTO, set aside maybe five to 10 % for…
In engineering team working under him and then maybe, you know, an additional five to 10 ish percent for future hires. Um, and, know, possibly throw in a rev share as an additional incentive or counter to equity portions. So, um, you know, that was just to start negotiations and, um, the project manager who has said, you know, I could come in as, or he could come in as CTO.
Uh, was like, yeah, I think I can get this over the finish line, um, for an initial launch within like two months, possibly three. And either he can do it all himself or can have an additional, uh, very cheap, but hungry and experienced engineer who could work full time on this. And he’s overseas, um, over, you know, the next couple of months and, know, maybe at max cost roughly three K.
Or potentially even like a small slice of equity be willing to work for you know again I’m very you know over budget so well not very over budget, but I am over budget and so young Okay, possibly 3k, you know versus offering additional equity like one way or another I have to get this project over the finish line and You know, what is the most effective way to do that, you know, it would be
In my opinion, at this point, yeah, less painful to offer up ownership compared to you paying even additional amounts more out of pocket. So, the proposed CTO came back and he was like, you know, I would love 30%, but you know, can do this for 20. And he was asking for a 20 % vested equity amount, upon completion of the
milestone of getting the product ready for launch and then the remaining 5 % vested over a two year schedule. And also have a rev share of 20 % equivalent to what is vested from an equity perspective and goes up according to what amount of equity
ends up getting invested over time. A key caveat with that is that, you know, you know, anticipated CTO, similar kind of age range too. He has a young family, you know, not a lot of cash reserves in the bank. And, you he’s also been working on a different startup that they’re trying to land this whale client in the fintech space, but that doesn’t work out.
You know, his finances are going to be pretty tight. and so, you know, there was a chance that, okay, he could get this land price or project over the finish line from, you know, a launch perspective, but you know, if he doesn’t land this other client with his other startup, we can’t ramp up revenue quick enough on land price or, and who knows like what happens with the economy? Like he might have to bail, but he said he would line up, you know, a,
high quality replacement to take over his role. Yeah, which I’m fully understanding of. I’ve worked with different partners many times over the past 10 years, my entrepreneurial career. The key concern with me though is like, okay, we’re embarking on, there’s no guarantees in any business, like land price, we’re not expecting to like earn massive revenue off the gate and I want to like incentivize free trials and so forth to…
get the hooks in for how good the product is. So, you know, the ramp up period for revenue is not expected to be like super fast. And again, who knows in this economy or relying on one possible whale client to land, to kind of reset the finances, you know, having a young family, maybe he has to go to another W-2, I don’t know, but that was a high risk for me to consider. Okay, even, you know,
And I would be more conservative on like looking at where we’re at, you know, possible recession here, whatever. I would say there’s probably more than a coin flips chance or like roughly a coin flip that he might have to bail on the project after a quarter. Or maybe, maybe a bit more than that. And then, you know, me giving up already 20 % of the equity. Yes, to get the project over the finish line to launch.
but then I don’t have as many incentives or I’d have to give up a lot more control of the company to bring in somebody else accordingly. So to me that was very high risk. So I countered back and said, know, yeah, we definitely want you to get this product set to launch, but let’s flip the numbers. So, you know, that milestone of getting us to a launch point, I’m willing to give up 5 % of the company.
And then, okay, we can keep a two year vest schedule, you know, kind of quarterly vesting periods and retain that 20 % for there for that period of time. So then it’s far less risky for me from retaining ownership if, you know, the launch is shaky and again, who knows what happens.
the economy or his other company, like it doesn’t do as well and so forth. that gives me a lot more flexibility to adapt as needed. but I’d still be willing to give up, a 20 % rev share at the point of launch, as if, you know, we had accelerated his equity to a 20 % and then, you know,
Over that remaining two-year period. Yes, there’s additional vesting period so he can earn, you know the extra 5 % That will also increase his rev share percentage over time. So Mike, you know revenue again It’s probably not gonna be anything crazy off the bat The revenue is less important to me then you know retaining control the the company as needed For additional incentive and so forth and who knows what routes to growth could be in and in all that
So that’s kind of what I was figuring out on the fly going through this conversation. And, know, that’s just the thing. I know you like within land investing too, sometimes, you know, you don’t know exactly where the conversation is going to go. You think you have some cards in the pocket, figure out what feels fair and what type of structure seems workable in order to figure out a way to cut a deal. So.
like the structure that it was able to, you know, handshake agree on. It’s probably not like the most routine, but it’s a excellent starting point. And then, yeah, we’re going to be working on formalizing it over the next couple of weeks, you know, drafting LLCA, attorney review and so forth. But again, we’ve already had an established working relationship and trust built up that it’s like, okay, let’s still get to work on this now. And we already have been working on it.
together prior to even having this conversation that, you know, we’re working under the assumption we’re gonna hammer out the final details to formalize. But like, this is kind of the key meat of the agreement at hand here. So just to give you all an update from how I navigated that conversation, I know this might’ve been like a bit over the, you know, over a lot of your heads and so forth.
It’s like, yeah, vested equity and so forth. Uh, it is an as routine within the land investor landing investing space. So, um, totally understand that, but, um, you know, if you do have any other questions, I can go into like more depth about some of these aspects, but like, think most of you probably get the gist of the bottom line. I was trying to be cautious about offering too much ownership, making sure I remained in control of.
the company, but also being generous from a revenue share perspective with the understanding that like revenue is not going to be like massive right out of the gate. unless we’re like super lucky, but I, you know, I’m always trying to be conservative in my estimates. it’s just smart business typically. So hopefully this is helpful or at least interesting to you. I know it kind of energizes me, chatting about this type of stuff. So.
With that in mind, if you’re looking for funding, I just got a couple more deals come in today, SeriousLand.Capital, Land Daily Diligence Facebook group for zero cost review of your diligence. Remember on April 17th, myself, Dave Denniston and Justin Sleva will be hosting two hot seats for 45 minutes each at 1.30 PM Central. So if you’re interested in grabbing one of those seats, zero cost to you. This is unconference style hot seat session.
Let me know ASAP and then of course landpriced.ai most simple and accurate way to price land which I just talked about earlier today on this podcast. Subscribe and share looking forward to next time. Take care. Bye.
