Chicago Start-ups Swap Equity for Services
In the dot-com era, it wasn't unusual for start-ups low on cash to do a little creative bartering to make ends meet. In exchange for, say, a little Web design work, companies would offer individuals an equity stake. Of course then the bubble burst and there was no equity left.
Well, now bartering-for-equity practice is back.
According to a Crain's report, Chicago area entrepreneurs are again swapping equity for services. With little money to support a growing business, start-ups like night-club admission app Jump Rope are getting service discounts in exchange for an equity stake. Companies are making these agreements with graphic designers, Web developers, lawyers, and other service providers, Crain's reports.
Jump Rope founder Peter Braxton entered into a barter relationship with Ora Interactive LLC, a mobile development agency. “These guys bring very specific talents and tools and perspective to the table that I just don't have,” he told Crain's. Braxton says he wouldn't have been able to hire Ora and launch Jump Rope without the partnership. “I didn't have access to that capital when I started building it."
More entrepreneurs are following in Braxton's footsteps--with hopes that the freed up capital will allow them to get their companies to market with a product that will benefit all parties involved. Sometimes, however, the arrangement works out better for the service provider: Remember graffiti artist David Choe, who accepted Facebook stock (pre-IPO) rather than $60,000 for the custom art work he did at Facebook HQ?
Mostly, though, founders agree that it's a worthwhile risk because both parties wind up working together for collective success. Solar start-up PVPower founder Dan Kuthy says the exchange is worth it because he gains an invested source of service.
“It's much more fun to work together when someone's thinking about the business strategically like you are and wants the business to succeed," Kuthy told Crain's.