Would a Software/APP Development Firm Accept Half Pay/Half Equity Deals?

There are numerous companies today that operate on an outcome basis. This means that equity for the work delivered is perfectly acceptable to a lot of service companies. However, larger technology service firms are generally hesitant to accept such deals.

Equity and Financial Considerations

When considering a deal where you offer half pay and half equity, there are several key financial and equity considerations to keep in mind:

How much money are you putting into the company: This is a crucial factor in any business deal. It's essential to understand the financial investment you are willing to make. How much equity are you keeping: It's important to know how much ownership you want to maintain in the company. Equity allocation plays a critical role in decision-making and control within the business.

Balancing Equity and Compensation

When I consider such deals, I would want to maintain a significant portion of the equity unless there is a compelling reason for me to give up a large amount. In most cases, unless there is a massive additional value-added by the team, 95% of the total equity should be reserved for the development firm to ensure they have a substantial stake in the success of the venture.

For a deal where you aim to pay someone at dirt-cheap rates and offer future equity, be prepared to make a significant equity commitment. This might mean parting with a large portion of your equity, while the developer or firm takes a small finder's fee or a minor equity stake in exchange for their expertise and effort.

Achieving a Fair and Balanced Deal

The key to a successful and fair deal is finding a balance between the financial compensation and the stake in the company. Here are a few steps to consider:

Clarify the Terms: Ensure that all terms, including payment structure and equity allocation, are clearly defined in a legally binding agreement. Fair Equity Distribution: Consult with experienced professionals who can help you distribute equity fairly and ensure it aligns with the value and contributions of each party. Account for Future Growth: Consider how the equity structure will accommodate future growth and potential exit strategies.

Conclusion

In conclusion, while accepting half pay and half equity might be acceptable in some cases, it is crucial to carefully evaluate the financial and equity implications. Understanding the value of your investment and the developer's contributions is essential to ensuring a fair and profitable outcome for both parties.