Questions

We just launched our startup with a designer helping us pro bono to spruce up the design of it. He's asking for compensation now (which is fair) and is willing to trade in his service for equity. Just wondering if it's better to pay than to trade equity for the service.

You need to understand what equity is and what it isn't. Equity should be used to launch your company and get you to revenue. It should not be used for one time expenses.

So you use equity for talent, because talent is difficult to find and you want people who are willing to stay with you to reach your goals. Or you use equity to obtain cash, since you need cash to pay for talent, and for developing the company.

Furthermore, equity is finite -- there is only 100% of it. At the point when you have given away all of it, you have zero left to give for the life of the company. Obviously, you want to avoid giving away equity as much as possible.

You do not want to use equity for one-time expenses, such as office furniture, or ongoing overhead, such as rent. Paying rent adds no value to your company, and neither does furniture. They may be necessary expenses, but they themselves add no value.

So now you should understand that a company that sets up your website is an ordinary business expense and you should not use up your equity


Answered 4 years ago

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