December 26, 2023
How about equity?
People often ask how I have responded to clients who have offered me equity instead of cash as compensation.
Here are my thoughts:
- Personally, I have never been attracted to equity as compensation because my risk tolerance is different from that of most startup founders. For me, it has always been cash or no deal. (And OBTW, none of the small number of backed startups I’ve worked with had an exit that amounted to much)
- Early-stage startups are usually a bad fit for value pricing because the uncertainty is too high to make any reasonable predictions.
To be fair, equity - as well as its cousins, sales commissions, profit sharing, and success fees - are all perfectly valid ways to make money with aligned financial incentives.
However, they are not all equal when it comes to risk or cash flow.
Proceed into these waters with caution.