Ryan McCarthy

Weighing Risks

Here are four things to think about before signing a work-for-equity deal.

 
  1. Can you handle the risk? Keep in mind that you may never get your investment back in work-for-equity deals. If you don't want to put a lot of money at risk, consider investing only your profit margin and requiring your customers to put up at least some of your normal fee in cash.
  2. How will you protect your stake? When structuring work-for-equity deals, you may want to argue for the right to invest in future funding rounds.
  3. Do you have the right kind of clients? These deals work best with start-ups that don't need much capital to get off the ground. Plus, your services should be as valuable to them as cash.
  4. Do you have time for a management role? Taking a board seat means a significant time commitment. If you don't have the time, keep your stake small.