Stocks & Equity as a payment for development
If you are startup founder, building your founding team is the most crucial decision in your journey.
Non-tech founders always look for amazing tech co-founders.
A lot of founders are also working with tech agencies/ freelancer/ development firms as their tech co-founders.
As a development agency, we have received these questions multiple times.
- Do you take equity as a payment?
- Will you accept stocks as a payment for the services you offer?
Often times an immediate reaction from the agency or firm would be NO.
In next few paragraphs, I try to give a perspective from a freelancer/development agency.
- Is it unethical or unreasonable to offer stocks/ equity for the work?
No. In a way, that is the most rewarding offer. You are sharing a small portion of the organisation & possible upside of your business. - When it is unreasonable to offer stocks/ equity for the work?
When you have not shared enough details, hypotheses or funding commitment to another party.
Let’s do a small exercise:
Will you invest your $ 50000 & 6 months of your time in ‘CASHEDART’ company?
You will ask series of questions before investing. Unless it is a DogeCoin :D
- What is this company doing?
- What’s their business model & are they successful?
- How long are they in business?
- Have they raised any funding?
- Who are the promoters? What’s their background?
- How successful they are with their other ventures?
- Note: I just made up this company name which does not exist
If you approach an agency /freelancer as you approach a potential investor. Chances of securing a deal with them will be very high.
- Intro: I am a young founder/team, and in the past we have created no-code version of the product. [Having a no-code, low-code product increases your chances with investors & potential new team members.]
- Idea: We are currently working on a new creators financial education platform which will help young creators invest small sums from their revenue.
- Team Composition: We are a team of 3 people with a proven experience in marketing, content creation & growth. (Always give them high level idea about you, team, problem you are solving & possibly market size)
- Research: We have done 400 user interviews in the last 3 months & have close to 60 early stage users who are willing to pay $39/ month for this service. (This shows you know your subject & have a realistic expectation from the product). We already have created a prototype with AirTable & Zapier.
- Ask: In order to make it scalable, we are looking for someone who can help us with Progressive Web Application. We already have discussed & showcased this product to 2 potential angel investors & got commitment of 12 months funding once we do 200+ monthly customers. (This provides them clarity, potential & preparedness of your current state)
- Why you?: We reviewed your portfolio & your experience in building solutions using Plaid & Other FinTech platforms encouraged us to reach out to you. (This shows you have researched them.)
- Offer: As of now, we have allocated a small sum of money for building this product, but to cover the risk we are willing to provide equity. (This shows you respect their time, expertise & authority)
- Flexibility: We can give you an option to swap that equity into cash when we raise our investment. With that, We will be paying a premium for the risk you take. And if everything fails, I will personally cover the cost in the coming 6 months. (This shows your sincerity about the venture & relationship.)
In my opinion, a pitch like above will increase or improve your chances of converting any freelancer / development agency to join you as a partner, co-founder.
In my next post, I will cover our framework of selecting startups or teams to work on equity basis.
