October 10, 2022

Five rules for doing work in exchange for equity

As I’ve spoken to friends that have also run marketing agencies and development shops, or even law firms and lobbying groups, there is one tempting idea that everybody considers at some point in their journey: doing work for equity. Instead of charging a client $5,000 or $500,000, what if you did the work for “free” as an investment and get a pile of stock in return?

It doesn’t feel as painful as coughing up that dough for a similar investment, and your expertise will help them go further, faster, right? Maybe.

Getting paid in stock is almost always boom or bust move. Some of those friends minted millions on their deal, and others wrote off the deal as worthless – sinking time and resources into nothing. To give you a sense of the odds, the former group is much, much smaller than the latter one.

It’s a tricky situation, and one we faced down in our own agency run multiple times. Looking back, here are the five rules you should follow when taking this gamble:

You can afford to do the work for free

In order to even consider this bet, you have to be in a place where you can afford to do the work for nothing – because that is what your equity will be worth most of the time. Even if your payment results in outsized returns, it can often be years down the road, and in the meantime your payroll and rent are due next week.

If you are investing your labor in a pre-IPO company, which is what most of these deals are, you are (for the most part) unable to access that money until an acquisition or public offering. If you’re doing work on behalf of a publicly-traded firm, your payment is a lot closer to cash in terms of how you can use it, though it is of course still subject to the fluctuations of the market.

Like any responsible gamble, only bet with money you can afford to lose. The hard fact is that most of these bets lose. Most businesses fail. Don't let yours fail with it.

You would choose to invest the same amount otherwise

The fun thing about money is that it is fungible (as opposed to the “non-fungible” in NFTs). Each dollar is the same as the next, and it doesn’t really matter where it came from or where it is going.

When analyzing a potential deal, ask yourself this: “If I got paid in cash, would I still choose to invest the same amount of money into this company?”

If yes, then go for it. If no, then pump the brakes. You need to factor in your margin as well as any intangibles you bring to the table that would give the client an unfair advantage, but the question at the end of the day is still: would I rather have the cash or the equity?

Your work is a defined scope

You’re never more susceptible to scope creep than when you’re working for equity. Because labor and ownership is swapping hands instead of money, the client will be tempted to look to you as a partner instead of just an investor.

For these deals to succeed, you need a defined scope of work that is being exchanged for a defined amount of equity. If more work is required, you need to figure out compensation for that – it’s not a gimme because you’re “on the team.” Each dollar in work should correspond to a dollar in payment.

Now, this is not to say you shouldn’t be generous and flexible, as you should with all of your relationships. You are now invested (literally) in the client’s success, so it’s in your interest to go above and beyond as much as you can, but you need to make sure to keep things tight to avoid abuse down the road.

Your project isn’t a distraction

Anybody in a client-based business knows that it’s loosely-organized chaos more often than not. If you are doing an equity project, you need to make sure that it doesn’t take you out of the flow of your other work, otherwise everything can come crashing down.

Keeping the scope defined as discussed above will do half the job, but the other half requires that you make sure this work fits into your business’s normal workflow. Ideally it fits in like a puzzle piece: just another project in your book of business. Same staffing, same process, same communications.

It’s tempting to step outside your competency on these projects, which is another frequent way these projects go off the rails. If you are a law firm, you shouldn’t be doing marketing work for your equity client. If you’re a marketing agency, you shouldn’t be managing their bookkeeping. Let people do what they are good at.

You like and trust them

Not doing business with assholes has always been a top priority for me personally, and it makes it a lot more enjoyable in both the short and long runs. You spend a lot of time with your clients and colleagues, and it’s always better when you actually like them. Equity clients are no different.

Where they are different is in how difficult it can be to cut ties with them. Once you have taken stock in their venture, you’re intertwined in their success. You often can’t cash out for a while, and you might even have some say in their operations if your stake is big enough. If client work is dating, client work for equity is a marriage. You need to be sure about it.


About the Author

Ben Guttmann ran a marketing agency for a long time, now he teaches digital marketing at Baruch College, just wrote his first book (Simply Put), and works with cool folks on other projects in-between all of that. He writes about how we experience a world shaped by technology and humanity – and how we can build a better one.

Get my new book, it just came out.

Read Next

Got it. You're on the list. 🍻
Oops! Something went wrong while submitting the form.
Ben Guttmann
Copyright Ben Guttmann
Privacy Policy