I spoke with another company in our coworking space the other week and the founder told me that one of her cofounders is just listed as an engineer. A quick perusal of their LinkedIn and website confirmed this. I found that a bit strange, but I’m not an expert on startup management. I was more concerned that potential investors would be confused about why she would start a company with someone with a technical background and not make them the CTO.
Job title is about role at the company. At a startup, job title matters even less b/c the scope of responsibility is generally greater. You may have a very talented engineer who is interested in getting early equity and building the product, but they don't want to spend their time managing the broader / more abstract responsibilities of a CTO in the long run, so it makes no sense to call them CTO. They may be a founder, having joined the company before any funding, and they may even hold a significant amount of equity. That someone wants to join a company early and have significant equity... it doesn't immediately follow that they want to lead a large group of people or take on executive responsibilities (which are generally more people oriented than the details of software). I tend to think job titles are... I think some people get excited about being called CEO or whatever, and it's a distraction from what actually matters: execution. At a startup, I think you need just enough title so people know who makes decisions but not so much that anybody feels more important than the quality of their work.
No. Cofounders don't need to have "C" titles.
The best title for a co-founder is one that helps them do their job effectively. If they are going to lead other developers, create the long term technical strategy of the company, or represent the company's technical face, then the CTO title may better set the expectations of the people they will work with. If they are going to be an individual contributor, and are not representing the company as an officer in public, then the Engineer title is probably appropriate. It allows the CEO of that company to seek out a CTO at some future time, or if the engineer grows in to the responsibility of the CTO role, they can be given a promotion to recognize that.
Investors will appreciate that the title CTO at your company accurately reflects the officer level responsibilities it generally has at established companies, and isn't handed out thoughtlessly or in a misleading way.
As an investor, I would be impressed that the technical cofounder either recognized they were not ready or the right person for the CTO title or, better, did not care what their title was but just wanted to get the job done.
I have done many deals where the designated CEO at the start was not quite ready and stepped aside for an interim CEO as part of the funding. In each case, the company was very successful.