If you don't have the background in it, I suggest you begin to educate yourself in market cap projections and break-even analysis.
You need to know 1.25% of what. 1.25% of a 50,000,000 company is $650,000; nothing to sneeze at, but not a massive pay day by any means. Especial with taking the risk of 1/2 salary for an extended period of time.
Second, you need to know the projection on when you will level off on salary to return to market. If it is a year no big deal, but what if it is five years.
You need to weigh this level off period against the percentage of market cap projection and see if you are comfortable with the numbers.
Currently it seems impossible for me to make any projections like that. I know they are self-funded and are paying me out of pocket. They do not yet have a complete product which is what I am helping them build. The software we have developed so far is looking very promising and I'm sure it is likely to crush the current competition, but it is hard to guess what the company is valued at or what it will be valued at.
I am thinking of putting in my contract that my salary would be renegotiated every time they take on funding or after the company has become profitable until my salary reaches a pre-agreed on market rate for my position.
You say it will crush the competition, what is there market cap. The point is not to get the number that will hold the test of time, but to get somewhere in a remote ball park so that you could know what the extreme bottom end is. For example one competitor may be worth 100 million and 1 is worth a billion. you could say well the bottom end looks like a 1.25% of a 100 million dollar company, or you may chose to average the two competitors and say the bottom end is y.
The point is not to get it exactly right, rather to get some number that you may or not be comfortable with. The second option would be to project potential customers as well as potential product price and work into your numbers that way.
I strongly urge you to try to project these numbers even on highly subjective data points.
As for you salary, do not put in your contract renegotiation, that puts you in a disadvantageous position at every round rather you should negotiate a schedule up front to return to market rates. e.g. if the company reached x capitalization you move to y% of current market rates.
With this model it puts you in the position to have a bargaining chip as funding rounds come around and not get diluted out while still being paid less than market.
With this structure if they continue to want to keep you below market (to keep the liability light) then they have to negotiate with you to further sell your earning potential.
Which is exactly what you are selling so you really need to know the price of what you are selling. Just as you would not sell a car without knowing its market value you need to analyze the value of your lost earning potential against the investment risk.
You need to know 1.25% of what. 1.25% of a 50,000,000 company is $650,000; nothing to sneeze at, but not a massive pay day by any means. Especial with taking the risk of 1/2 salary for an extended period of time.
Second, you need to know the projection on when you will level off on salary to return to market. If it is a year no big deal, but what if it is five years.
You need to weigh this level off period against the percentage of market cap projection and see if you are comfortable with the numbers.