

Contracting For Equity? Get a Lawyer - superkinz
https://grouptalent.com/blog/contract-work-for-equity-bad

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soneill
I would think that the moment you're offered 40% of a company, your first
thought would be "this guy clearly doesn't believe in this company himself, or
else he'd never offer me that much of his company". There are so many options
available, be it leaving no stone unturned to find some additional cash (bank
loans, borrowing from family, cashing investments, etc), or offering a non-
equity profit sharing arrangement, that there's really no excuse for giving up
large chunks of equity until you're receiving serious capital in return. This
just sounds like a stupid deal to offer, and a worse one to take.

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superkinz
Maybe, but when you're being offered such a large chunk of equity I think
folks tend to think of it more like a partnership. I mean 60% and 40% are
relatively equal and generally on par with the kind of split many serial
entrepreneurs think there ought to exist, whether you agree with that or not.

Well finding technically skilled people who are available and willing to work
on your project isn't exactly easy. He may have embraced that a little sooner
than other entrepreneurs and decided to go for something juicy enough that he
could make headway.

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soneill
Well, that's kind of the point, isn't it? As a non-technical business founder
myself, I just can't understand what that guy possibly would have been
thinking. I'd never give up that much of my company unless the other party was
coming on board as full partner, meaning they're also going to be sharing all
the financial and legal risks (and yes, that means contributing money as well
as time). If you value your company at all, 40% is a massive sum to pay
someone unless they're sharing all the risks with you, not just spending some
of their time. Just giving yourself a $1 million dollar valuation, that means
paying someone $400,000 to handle just one element of your business...and you
could probably get it done a lot cheaper if you just took the time to go
through your options.

As for finding technically skilled people who are available and want to work,
it's not easy, but nothing in business is easy. It's no harder than any other
part of a business, it just requires persistence and knowing where to look (I
should know, I've hired a bunch of them in the last 6 months). Taking a
shortcut and throwing a bunch of equity at the problem just shows the kind of
lack of foresight that should make you question whether you really want to
work with that kind of person.

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procyon
Being the Chief Tech at Conceivian (and having the best job of my life), I can
tell you that working with startup founder's is a thoroughly enjoyable
experience, and I'd do it again. There were tons of learnings, innovation and
fun in the project Andrew mentioned and several others we have done. BUT
nothing beats getting fully paid for the work done!!

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superkinz
Agreed. Thanks again for sharing the story, I think it's super helpful to
other folks to see where things break so they can either avoid common
pitfalls, or avoid the topic altogether!

