IT · Market research

Should I work on Equity basis for any Startup?

Aarif Qureshi Co-founder of Skyward Softwares & Solutions

January 18th, 2018

I'm a co-founder of an IT company in India. I always face some clients they want to work only on Equity basis.

They expect to work and develop the product without investing money. So I wanted to ask what should be the best way to deal with those clients?

Should we work for their ideas without any cost and wait for the successful launch of the project? What price model should I follow in that case?

Is there any platform where I can find the clients who has ideas to develop and also able to spend and invest some amount as well?

Karthick Sundar Experienced CTO capable of building cost effective, high quality remote teams and robust software

January 18th, 2018

I would personally never ask anyone to work for free. Gracefully remind the clients that you have got bills to pay and also let them know that they should shell out money if they want to build a great product. Sweat equity is a thing that works under very specific circumstances with known team imho. If the founding team has vision and a strategy to sell, they will/should also have some money to build the initial version of the product.

David M

January 19th, 2018

Not enough information here. Nothing wrong with equity depending on the situation, and in some cases you will make far more because you have an equity stake. As for the advice to ask for 49%, do yourself a favor and DON"T do that because you will come across like you have no idea what you are doing and you will likely offend the startup. The issue that becomes complicated about taking equity (Which is not the same thing as Pro-Bono btw) is that you have to develop a skillset or use one, that involves evaluating that business. You have to evaluate their business plan to see if they actually stand a chance at making money and SOON. If I were in your position, I would do this. First look to your own company and evaluate your resources and how much of them you can allot for equity based deals. Try to obviously keep the focus on the paying clients. But if you can devote or create a very small division to evaluate equity based deals for startups, you may end up hitting some really big homeruns. In some regards it would almost be like you are creating an inhouse investment division, although you would have a very narrow focus limited to your company's main work. In such a case, there is no set rate for equity. No one is going to give you 49% or anywhere near it unless you are creating their business and building it for them and also investing in it. As for the right amount, again no way to figure out what that is with no more information. Could be as low as 2-3% could be as high as 10% or maybe more. Again..depends on what you are doing. You might also consider suggesting a % of sales for any revenue generated directly on what you build for them. And that could be as limited as a few months or all the way to in perpetuity...again just depends on the scope of what you are doing.

Kirill Pertsev

January 18th, 2018

Assuming that you can actually afford "pro bono" work, as lawyers put it, and you believe in their idea then go ahead. As for the price structure, it's pretty easy - ask for 49% of equity. It's absolutely fair. Once you ask you'll see them quickly disappear. Problem solved, you didn't say "no" to the customer and you got rid of a freerider.

Saransh Sharma Product Developer

January 18th, 2018

I think then answer is to say no directly because your time is your value and if they are not investing their time which is hence value it means it's not worth it.

Money talks.