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Working For Equity

Monday, April 12th, 2010 - 5:18 pm - Not-Sales

There are certainly times where working for equity is a good idea. Not many of them, but there are some.  Usually the person performing the work is taking on nearly all of the risk in this situation, which isn’t tenable for a long term strategy.  As someone who works with start-ups and innovators on a regular basis I’ve heard nearly every pitch to get us to work for equity (or partial cash + equity).  The one that frustrates me the most is the “I want to make sure we’re all invested in this project’s success” argument.

Listen, I understand that there are plenty of shyster developers and development companies out there.  I even get it if you’ve been burned by a few of them before who quit working hard once the check was deposited.  But to assume that the only reason that my team would want to be sure to get your product out is that we’ll only get paid if you do, well that’s just demeaning.  That is what delineates a real professional from the field – his willingness to work for your success.  No amount of equity stake in your idea is going to change that.  I’ve seen numerous projects fall apart in an “equity” arrangement because one side lost faith in the other.  Just as often as when there was payment changing hands.

If you don’t show enough value in what you’re doing to put some money behind it, no one else will either. If you really value something, and view it as vital to your success you should pay for it.  Yes there are reasons why people will work for what amounts to free about 85% of the time – desperation and fear among them – but don’t expect the highest quality guys to work without getting at least their costs covered.


  • Stan

    I’ve always felt that next time I start a company, at least some portion of my jobs would be done with equity buy in to those companies I felt truly had a business plan that I could get behind. I’m one of those who believe that when times are tough, some pretty solid companies need help to get critical things done, and that’s when equity as a form of payment seems to make some sense. Certain things have to be there though – (1) the equity is offered in lieue of cash at a time of obvious cash shortfalls for that company; (2) the product or service that’s being offered exites you almost as much as your own company does; and (3) you realize it’s services in lieue of cash and there is a high probability it will never amount to anything. I guess in a sense then you’re actually providing incubating services!

  • http://rynoweb.com Chuck Reynolds

    Well said – it’s funny this still has to be debated after all these years of us being pitched on these ideas and seeing them fail time and time again. There would have to be a REALLY good idea with some REALLY good people for me to consider that.

  • http://www.fortyagency.com/ James Archer

    My take on equity deals has always been that they should be treated the same as cash.

    If you want $30k of work out of us, then I’m going to put you through the same rigors that I would if you were asking me to hand you $30k of cash out of the bank (since that’s what we’d have if we put that time toward a paying project instead).

    That means you’re going to have to jump through a *lot* of hoops — possibly more than with an angel investor because we don’t have as much cash to play with, and because this kind of deal isn’t our specialty — and that ultimately I’m probably going to turn you down because I’m more realistic than a typical angel investor.

    That means you’re better off going to an angel investor first, and *then* coming to us. :-)