Ask HN: Is Sweat Equity a viable idea? • Hacker News Board

Re: Ask HN: Is Sweat Equity a viable idea?

#11

Post by tptacek » Sat, Jun 15, 2013, 7:01 PM UTC

bdfh42 wrote: post #10

tptacek wrote: post #6

No. So many reasons. * Even people with long-term commitments to companies have a hard time valuing equity. * In order to value equity, you need to be given access to confidential details of the company. * It's legally expensive to give different kinds of equity to people, and every time you do it you create a small (or worse) amount of risk. * The rules about employee equity are well-tested and understood. The rules…

Whole point is that you involve skilled individuals and (perhaps) long term mentors who will increase the likelihood that you become investable. Their "share" in the business is a positive vote of confidence in the idea and the founding team. Worrying about things that just might become an issue if by some magic you make it to the stage where you have a validated idea and a pitch that VCs might go for - well OK I adm…

Putting contractors on your cap table is not going to make you more investable.

Re: Ask HN: Is Sweat Equity a viable idea?

#12

Post by tptacek » Sat, Jun 15, 2013, 7:16 PM UTC

glurgh wrote: post #9

tptacek wrote: post #6

No. So many reasons. * Even people with long-term commitments to companies have a hard time valuing equity. * In order to value equity, you need to be given access to confidential details of the company. * It's legally expensive to give different kinds of equity to people, and every time you do it you create a small (or worse) amount of risk. * The rules about employee equity are well-tested and understood. The rules…

I wouldn't just not participate in a program like this; I wouldn't work for a company I found to be participating in one. Many (I'd even say most, maybe?) venture-backed startups engage in something like this, though, just not for very concrete things like design or engineering or marketing. Members of 'Advisory Boards' or 'Technical Advisors' or similar often get some nominal amount of stock [options/RSUs/whatnot].…

That's true, but the stock they receive is more in the notion of an honorarium than a payment for services rendered, and there's often mutual benefit aside from the stock (being on advisory boards is, or used to be, a high-status thing). Advisors don't so much try to value the stock they receive. But a lawyer or a web designer has to do that.

Also, the value a company gets from an advisor is long-term. Not the advice, but the NASCAR-sticker-like endorsement the company gets from the name on their website.

Re: Ask HN: Is Sweat Equity a viable idea?

#13

Post by glurgh » Sat, Jun 15, 2013, 7:46 PM UTC

tptacek wrote: post #12

glurgh wrote: post #9

Earlier quoted context omitted.

I wouldn't just not participate in a program like this; I wouldn't work for a company I found to be participating in one. Many (I'd even say most, maybe?) venture-backed startups engage in something like this, though, just not for very concrete things like design or engineering or marketing. Members of 'Advisory Boards' or 'Technical Advisors' or similar often get some nominal amount of stock [options/RSUs/whatnot].…

That's true, but the stock they receive is more in the notion of an honorarium than a payment for services rendered, and there's often mutual benefit aside from the stock (being on advisory boards is, or used to be, a high-status thing). Advisors don't so much try to value the stock they receive. But a lawyer or a web designer has to do that. Also, the value a company gets from an advisor is long-term. Not the advice…

I think (and I should have said so) I was mostly responding to the categorical-sounding 'No' at the start of your comment - such transactions do occur, occasionally even for straight up 'services rendered' (with the other party generally having to pass the 'qualified investor' bar).

I'm probably in violent agreement with you that there is no sensible way someone's going to be able to offer some magical web-based marketplace for such exchanges, for all the reasons you listed.

Re: Ask HN: Is Sweat Equity a viable idea?

#14

Post by tptacek » Sat, Jun 15, 2013, 7:52 PM UTC

glurgh wrote: post #13

tptacek wrote: post #12

Earlier quoted context omitted.

That's true, but the stock they receive is more in the notion of an honorarium than a payment for services rendered, and there's often mutual benefit aside from the stock (being on advisory boards is, or used to be, a high-status thing). Advisors don't so much try to value the stock they receive. But a lawyer or a web designer has to do that. Also, the value a company gets from an advisor is long-term. Not the advice…

I think (and I should have said so) I was mostly responding to the categorical-sounding 'No' at the start of your comment - such transactions do occur, occasionally even for straight up 'services rendered' (with the other party generally having to pass the 'qualified investor' bar). I'm probably in violent agreement with you that there is no sensible way someone's going to be able to offer some magical web-based mark…

Oh, sorry, the categorical no was just an answer to his question of whether I'd get involved in something like this.

Re: Ask HN: Is Sweat Equity a viable idea?

#15

Post by sharemywin » Thu, Jun 20, 2013, 3:09 PM UTC

The equity in business is pretty low until it generates cashflow or contains assets(traction). For businesses with traction their are already established ways of getting investment capital. Also, I don't know if it makes sense for a business to dillute it's equity for one time costs. If it were to be done, you would need somekind of project plan to profitablity. And some kind of model were nobody puts in effort until all the peices are in place. And how does the project adapt if people don't deliver on their promise?