Accepting Equity Instead of Cash

From time to time I get asked to work on different projects for a portion of the resulting revenue share in lieu of a cash payment. Any time this happens alarm bells go off in my head. Taking a risk on your own project is one thing, but taking a risk on someone else’s needs to be dealt with severe caution.

Ideas Hold No Value

When someone calls me up and asks me to build them an application or an e-commerce site and offers me a share of the revenue from the product I would be creating, I have to wonder if they’re aware of how risky that sounds. An idea on it’s own holds no value. If you can’t execute it, bring it through to completion, and find a market for it then you may as well be dreaming.

I mean, if I went to a property developer and said I had a great idea for building a new housing estate that would ensure a massive ROI, he’d probably say he was interested. But if I mentioned that I didn’t have any land, money, skills or building materials he’d be crazy not to tell me to take a hike.

Getting Burned

I’ve been burned by this once before (back when I was a student), and I certainly learned my lesson then. In hindsight I think it was better in the long run that it happened early in my career when the stakes were still low, but then again, I really shouldn’t have fallen for it at all.

For a long time now I’ve refused to do work using these types of payment terms and I think that today, I’m doing far better because of it. If anyone needs to hire me for a project I’m more then happy to hear all about their idea, but in keeping with my risk profile I’ll only accept payment in cash.

Exceptions to the Rule

The only time I would ever consider getting involved in a revenue share agreement instead of charging a fee is if I was convinced that the proposed project had been fully researched, there was a completed business plan and there was real evidence that it was a viable business. If someone comes to me with an idea and little else, then their time would be better spent talking to another developer.

The Lucky Few

Despite my personal experiences though, I’m sure on the odd occasion, this type of arrangement does actually work. I’d love to hear from anyone who has had success using this method of payment so I can ask them how they managed it. Because I far as I can tell, you’d be crazy to agree.

Comments

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  1. niall cole says:

    Hi Iarflaith , ive been having a snoop through your highly impressive blogs and related networking sites. I would have to agree strongly with your opinions on equity based payment offers. Having being pitched a few “sure things” in the e-commerce side of things, hindsight has luckily proven that i made the right choice in declining the offer. The time spent in developing an often uncomplete and poorly researched idea can never be replaced, with no monetary compensation at the end. To be honest a saavy business person should not expect to be taken seriously by any developer unless there is a financial offering from the very start – be it a deposit or payment plan. So with that in mind……em iarlflaith… i have a great idea…..beebo….with an extra “e”…we could make millions. Will have to pay you upon launch though 🙂 Wishing you continued success with webstrong from the guys at phoenixems.ie

    Jun 18, 2008
  2. Iarfhlaith says:

    Hey Niall, great to hear from you!

    And thanks for the kind words about the blog.

    As for your idea, I was thinking about a similar one too. It’s called gargle.com Like google.com only it searches the world for all the best beers! We’d be hailed as millionaires over night, I’ve no doubt about it. Mail me if you’re interested, we could meet up in the local to test the first of many pints!

    Jun 18, 2008

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