I have a couple people off Upwork that are interested in helping me out for equity instead of cash. I was looking at simply using a SAFE agreement valued at a pre-agreed upon price for their work, which isnt much (less than $500). So if they do $500 worth of work, they would get a SAFE agreement valued at $500 (as if they had just given the cash). Does a convertible note make more sense?
I dont have a lot of money to throw around right now. Does this approach make sense, or will it cause problems in the future? They are genuinely interested in the product and helping, how should I pursue? They are a subject matter expert which would bring great credibility to my project, and I need their help at least for now.THANK YOU!
There is never a guarantee that the future will go smooth, so just remind yourself that no matter what you decide, there will always be a risk. Let's see what options you might have to minimize that risk. A SAFE agreement is a fair place to start, but also keep in mind that it is a basic guide and can be altered to cater your situation. This is a good thing if you go that route because you are the one in control. Let's step outside the confines of the equitable agreement and possibly discuss some of the more important factors that ultimately go into where you are headed.
One of the first things you need to establish are the roles of these individuals and a mutually beneficial way of tracking their contribution for such a potentially valuable return such as equity. Basically you don't want someone taking you from step 1 to 3 and keeping a significant portion of equity if there are 30+ more steps to go and they decide to sweat out the team until they get their way. Always have a clearly defined escape plan as well that will still give them fair compensation if you choose to buy back their equity. There are many caveats to this, but again, you are the one outlining the terms.
Another clear understanding is how you all plan on making easy and hard decisions together if their equity gives them any control of these processes or if they decide to pull out and leave you in a choke hold halting progress. This falls more into the category of getting to know who you are working with, but still worth the time exploring. Having an industry leader or subject matter expert is always a benefit, but does no good if they can't still function as a team player. Credibility in this particular case is relative since this is a startup and you'll need to go above and beyond your current status to a tangible product so I wouldn't factor that in as an overt benefit right now.
Here is an important one! Be patient. Look around a little more for opportunities of support if you can. It might be tempting to jump into this now while you have some interest, but if you only recently started looking, look some more. Upwork is only one of many channels to find the right people. Take some time to think about the traits and personalities you really want involved as equitable partners. Explore and educate yourself a little more, just like you are doing here. When you have the right people in place, the legal part of the process goes WAY smoother and can really give everyone a boost when getting started.
Let's see what some others want to add to his conversation. Feel free to add more details or ask many more questions as well. Cheers!
You are right to be questioning what effect any equity offer might have on future interest in your company. If you're never going to seek outside funding, then the decision is entirely up to you when you consider sharing a stake in the company.
Most startups over-value outside expertise. But the dollar amount you're talking about is almost pocket change. Have you considered an I.O.U.? If they believe that you'll have cash in the future, couldn't they just defer your payments to them?
Most people interpret an ownership stake, even a small one, as having a voice. If you do share equity, be clear on whether any stake in your company also comes with authority to influence decisions. You might consider other instruments such as a convertible note, which acts as debt now, but converts to equity in the future when you are actually able to establish a value for your company.
There are lots of options. You could even pay these people from UpWork with a credit card at such a low dollar amount. Having no cash is not the same as having no credit.
Thanks for the feedback, convertible debt might be the correct way to go for this.
I guess my question is more directly -- has anyone paid contract work in equity only? And what did they use for this?
I heard a story about some artist who painted a wall at Facebook whos shares are worth a ton of $ now. Good for them, i'll be very happy if I can do the same for someone I guess...