A blog reader (one of three, as far as I can tell) asks:
I was wondering: do some startups only pay equity? I am thinking of launching a startup and I think I have a killer idea — there are very low equipment costs, etc, the only costs are labor and marketing, so I was trying to eliminate labor as an up-front since I have the personal capital for the needed initial equipment.
Yup, in some cases, people work for only equity (at least for some period). Of course, any person in this “mode” needs some other means of cash support: financial independence, a working significant other, or a willingness to dip into savings.
However, it gets tricky with multiple people not all in the same situation. For example, if you’re paying Bob a salary, but not paying Fred, Fred can rightly ask, why are we carrying Bob’s salary and not mine? You could give Fred more equity to make up the difference, but it can be hard to translate between equity and salary cash. It can get delicate very quickly.
Also, in my experience, it’s very difficult to get folks other than your closest friends & co-founders (that already know you) to work for just equity. Everyone else will need a lot of convincing the equity will be worth something.
I’m working on building up a team doing just this- I have two people devoting at least some of their time to the effort for nothing but equity- and the promise that I’ll pay them some day. 🙂
Kiril: thanks for your comment.
You suggested a point of clarity: it’s hard to get folks to work *full time* for just equity, esp. folks that you haven’t already worked with before.
it’s a little counterintuitive but in many cases i’d rather pay cahs than equity, particularly in early early days. as founder i am especially working for equity — and i want as much of it as i can get, not on day one, but on day last — and on day one, the company’ equity is about as cheaply priced as it ever gets. so if its at all possible to pay people cash, its a better deal long term…
btw, you have four readers at least (unless you counted me as one of the three)