
Billable Hour as SAFE (Simple Agreement for Future Equity) - jaybard
I am about to do some contract development work for a seed stage startup I would love to get on their cap table eventually. Should I simply ask for a SAFE that is based on my usual billable hour to other client?
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davismwfl
I don't know what is going around again, but this has been coming up a lot.
Let me give my opinion having been here in the past.

Only take equity if both of the following are true:

1\. You have enough money to live on and not getting income from this company
will not affect your personal or professional life in one bit.

2\. The company has proven some value that you see as a reasonable risk, and
accept that you will likely not see the upside for years, if ever.

The first issue can sometimes be offset some by taking equity as a difference
for a lower billable rate. e.g. you still bill and get paid for $40/hr, but
your normal rate is $100/hr so the difference is granted in equity.

The second issue can be mitigated over time as well, but always assume the
most likely scenario. They either will die and you have nothing, or it will
take considerable time for things to mature to where the equity is convertible
into anything of value.

Taking equity this way means you need to be very intelligent about dilution,
liquidation preferences etc or your "time" can become worthless even if they
are successful. Safest way is to make the equity convertible for you at the
next round, unless you opt out, but even that is no guarantee you'll get cash
-- also the upside is limited since your risk is also somewhat more limited as
is fair.

Last point, this is a valid way to work and there is absolutely nothing
improper with the concept. In fact equity gives you skin in the game so you
can win on the upside part of the play. But just understand with that also
means you need to accept a lot of risk and realities. I have done this (almost
always fails), I have also done a similar method at profitable companies when
I have promised my work (or my team in the past) in exchange for a percentage
of the upside of what I/we can produce (this is a super hard sell a lot of
times and you can get burned as I did a couple of times). I did win on a
couple of upside plays for profitable companies, but the startup equity has
never paid off in any material way.

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jaybard
Thank davismwfl for the quick response! Can you point me to the right keyword
I should look for past discussion like this ?

I love your idea about doing 40/60 split to ensure some kind of income. So
assuming 40 is the hard cost that you must pay yourself while 60 is the
opportunity cost by spending time with another billable client.

