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Remuneration can take many forms, and aside from a straightforward cash salary, you might be given the opportunity to instead be reimbursed for your work with equity in the organization itself.
This might sound like a potentially risky move, and it is not without its potential problems. But in the right context, equity could be a hugely beneficial trade to make in payment for services you’ve rendered.
Let’s look at some of the reasons that you might accept such an offer, and how this could play out in the long term.
Although unpredictable, the rewards could be significant
Lots of people are looking to find out where to invest money and get good returns, and owning a stake in a company which can appreciate in value as it grows, then sold off for a hefty profit further down the line, is a tried and tested method.
While it’s impossible to predict the precise trajectory that a startup will follow, there are plenty of examples of an equity trade paying off big time for the recipient. While you might not be able to turn a few hours of your time into a multimillion dollar payday when a startup goes public, you could still see an eventual return which is more valuable than your original invoiced amount.
Other factors, such as inflation and taxes, of course need to be taken into account. But if you calculate carefully and recognize the risks involved, there’s no reason to dismiss an equity offer straight away.
The scale and nature of the project matters most
A good reason to be cautious about choosing an equity trade over a traditional payment for your services is if the scale of the workload you are taking on is significant.
The more you’d expect to charge for your input, the more you stand to lose if the business folds, or if your stake simply doesn’t pay off in the way you anticipated when you choose to sell in future.
However, if you are only doing a relatively small-scale piece of work for a startup, and you don’t need the immediate cash injection yourself, then an equity deal might be more appealing. It all depends on your own circumstances and your approach to risk.
Also consider whether you are the only one doing the work, or whether you’ll have other team members involved. If you aren’t just a freelance contractor, but you run an agency, then an equity deal will leave you having to pay out staff salaries, without making anything from the arrangement. It’s a balancing act that you shouldn’t rush into.
Building a relationship is valuable
Freelancers, in particular, can benefit from having a good working relationship with clients, and if you provide services to startups, then getting in at the ground floor by accepting equity early on could secure you a lucrative relationship that keeps paying dividends over time.
Of course, once you’ve got equity in the startup, you’ll also have a stake in the ownership and a degree of control over the direction it takes. This might be another reason to get involved, especially if you have ideas and expertise you feel that you could contribute more effectively if you were an owner rather than just a service provider.
There’s no question that trading your services for equity in a startup is not always a good idea, and you might find that in the majority of cases you are better off requesting a cash payment and then investing this money yourself.
However, for the right company and the right service, it could be a way to expand your portfolio and even dip your toes into entrepreneurial involvement yourself.