In 2005, graffiti artist David Choe took shares over cash to paint the walls of an outfit called Facebook--shares now worth north of $200 million. Far more often, though, taking equity and waiving fees can leave you owning a small piece of nothing.

Cash-conscious startups are increasingly bringing equity to the negotiating table. For service providers and consulting firms, knowing when to turn down these equity pitches and when to take a slice of the pie is crucial. On the other side of the equation, entrepreneurs need to think long and hard before handing over shares in what could become a very valuable enterprise.

Just ask Emmett Shine, founder of digital creative agency Gin Lane. In 2012, Shine lowered his company's usual fee and took a small stake in shaving products startup Harry's. Gin Lane had never taken equity before, but Harry's had backing from a number of venture capital firms Shine knew well, and one of the Harry's co-founders had helped launch online eyewear company Warby Parker. "We knew a lot of the people who were getting involved in the project, and they were all the best at what they do," Shine says. Good call: Harry's was recently valued at around $750 million.

Since partnering with Harry's, Gin Lane has taken equity in several other clients, usually accepting a 1 to 3 percent piece. One basic rule: Clients have to put up enough cash to cover Gin Lane's operating costs during the engagement. Gin Lane also requires startup clients to offer it the same protections that seed investors get, such as the ability to make follow-on investments. While Shine says Gin Lane's partnership with Harry's continues to be fruitful, few startups come with the pedigree Harry's did. If you're considering taking or giving equity, these case studies offer valuable insights on whether you should take the plunge.

Understand the Risk

Be Disciplined

Red Antler is a branding company that frequently takes equity in startup clients. Co-founder JB Osborne says one of the first things to understand is how rare massively successful outcomes are. "If you make three bets and none of them work out, it's probably because you made only three," he says. "It's not something you can just dabble in, because you have to be very lucky." Expect losses.

In 2013, Red Antler reduced its fee to take a small stake in fledgling mattress company Casper, one of Inc.'s 30 Under 30 companies in 2015. Though many startups defer payment to service providers until after raising money, Casper paid Red Antler's fee in cash before closing its seed round. "It's an incredibly dangerous thing to have uncertainty about when you're being paid," Osborne says.

More important, though, Red Antler had faith in Casper's determination to take an unsexy category--mattresses--and persuade consumers to buy its product online. "No one cared about mattress companies before them; that they believed in creating something that was really hard to do was really attractive," Osborne says. For Casper, handing over equity was an equally perilous proposition. "Just like you wouldn't want to overpay with cash, you certainly don't want to overpay with equity," says Casper CEO Philip Krim.

Current tally: Casper reported $20 million in revenue in 2014, and raised $55 million at a $550 million valuation in June. So would Krim offer equity to a service provider again? "Certainly," he says. "The ability to incentivize someone with more than just cash--especially someone who is in really high demand--could definitely be valuable to us."

Always Ask for Some Cash

All-Equity Deals Can Cost You

In 2006, design and marketing agency Aruliden helped devise a branding and product-design strategy for Q Drinks, a line of all-natural tonic water that had yet to hit store shelves. In return, Aruliden took a combination of cash, royalties, and a small equity stake. "That's an ideal scenario, when you can get all three," says Aruliden co-founder Rinat Aruh.

While Q Drinks has seen consistent revenue growth, increasing the value of Aruliden's equity, not all of the firm's startup partnerships have succeeded. One former client, an appliance company, agreed to pay in cash and equity. But Aruliden walked­ when it became clear the cash would not be forthcoming. Aruh says one early sign that she shouldn't have partnered with that company came when it couldn't make decisions about manufacturing. "They didn't have their plan together, and they didn't have the backing they needed," she says. Aruliden now takes more care evaluating whether clients can pay up.

Get Creative

Where There's Trust, There's Probably a Solution

In 2013, branding and consulting firm Sylvain Labs helped serial entrepreneur Jonathan Levine develop a line of headphones under the name Master & Dynamic. Sylvain founder Alain Sylvain accepted a combo of cash and equity. "I usually aim for around one-third of the project in cash, which covers a lot of our overhead," Sylvain says, adding that he likes to negotiate additional cash or equity bonuses tied to reaching sales targets and other milestones.

While Sylvain saw promise in a premium headphone brand, he says you have to trust your gut. "You have to really put all the paperwork aside and look at the founder and the business and feel good about it," he says. Levine says his partnership with Sylvain Labs has been invaluable, but he advises entrepreneurs to think hard before offering shares. "Rather than granting actual equity, you could offer the right to buy at a preferential price," he says.

Equity Powered

Why Service Providers Took a Risk to Help Launch These Products

Billy Jealousy hires Tractorbeam

• The Mission -  Branding, design, and go-to-market strategy
​• Equity Stake - Less than 10 percent

Creative branding agency Tractorbeam made an all-equity deal with skin care company Billy Jealousy. "We tried the product and loved it," says Tractorbeam's head of digital marketing, Christopher Miller.

Harry's hires Gin Lane

• The Mission - User experience and website design
• Equity Stake - Less than 1 percent

Digital creative agency Gin Lane took equity in Harry's primarily because of its founders' track record. Emmett Shine, Gin Lane's founder, says, "We always say bet on the jockey, not the horse."

Thrive Farmers hires Design Coup

• The Mission - Brand positioning and product design
• Equity Stake - Less than 10 percent

Strategic branding and creative agency Design Coup cut its fee roughly in half for coffee company Thrive Farmers, because it was so impressed by the startup's business model. Thrive uses a revenue split with coffee farmers that helps them capture more of the sale price of their crop.

The Fine Print

Before equity is used as a form of payment, service providers and entrepreneurs should come to terms on these questions.

Are you offering common equity, preferred shares, or a convertible note?

"If you're doing this for the first time, get advice from a professional lawyer and investor," says Gin Lane CEO Nicholas Ling. "One percent of equity in something can be very different depending on what terms you have around it."

What is your exit plan and when do you expect to exit?

"Remember that you're no different from an investor," says Red Antler co-founder JB Osborne. "You're just investing your own resources."

Do you have the budget to do everything you will likely have to?

"If they can't show you how it's going to come to life, they might not be able to get the support and capital they need to successfully launch the business," says Osborne.

What is your distribution plan?

"Distribution is a bottleneck for a lot of product launches," says Aruliden co-founder Rinat Aruh.

From the October 2015 issue of Inc. magazine