Equity for Short-Term Contract?

Question

Recently I have been in conversations with a founder who has some product developed, but is looking for significant additional development. Initially they were looking for a cofounder, but I think now they kind of are in the position where they want to hold out for a "unicorn" cofounder to meet some of their very specific needs.I mean, yes: many red flags with that alone, but wanted to give some background.They approached me with a short-term contract (less than a year) to do significant product development - essentially take their existing small product (which probably has 20-40 man hours of work into it, it's basically just a site with a login) and bring it to a point where they can generate revenue.Ok, fine - but how things are evolving, it sounds like this is becoming a fixed cost contract that is paid solely in equity.Does anyone have any experience with this? It seems like a strange arrangement, as there's a conflict with requesting what I would feel would be a fair amount of equity (which would be a significant amount) but since it is short-term, it also seems unfair to request such a large chunk of equity for such a short work period. The traditional model makes sense here: long term relationship with a large chunk of equity vesting over a few years, but trying to wrap my head around what a "fair" amount of equity would be for a short-term contract.

DamnYuppie · Accepted Answer

Unless you are very confident of the teams ability to market and sell the product I would not take equity. They basically are getting you to work for free to build their product. Which they could then take to go get funding and in the worst case they can find a way to completely dilute your shares.There is literally no upside to this deal for you as you have described it. It is nice to be wanted but cash is king.

jdenning · Answer

I built a small site/app once for 5%. I mostly only did it because I wanted a project that would force me to get some experience in certain technologies, and if I made any money that'd be a nice bonus (i.e. I never expected for the shares to be worth anything). The company folded about 6 months afterwards, they didn't even bother notifying me when they went under.
The point is, don't expect to get paid if you do this kind of thing.
I'd advise only do it if:
- the project is very limited scope, and you make it clear that they're not buying an on-call support person after delivery
- everything is in writing, using standard terms - everybody is friendly when there's no money on the table, not so much when your % cuts into their $$$ (c.f. The Facebook)
- you actually want to do the project, you don't need the money, and you're not going to be pissed off if you never see a dime
Edit: Forgot to mention, ask for a lot of points - you're shouldering a lot of risk that you're never going to get paid for your time. If they push back, point out that the company is not established, and you have no input into the direction of the company, so you are operating at basically 100% risk.