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Has anyone made money from non-cofounder work-for-equity only arrangements?

I was intrigued by a previous poster and decided to reframe the question. Being in the valley for almost 15 years. I’ve seen countless founders promise engineers “sweat equity” if they would contribute work to their startup. This can be part time or full time. Note these are not legitimate co-founder type arrangements where the person joining will get significant equity (10%+) just – hey work for me, I give you shares.

Basically ZERO pay and a very small equity portion usually based on hours worked. The percentage of equity is seldom disclosed, usually just a number of shares.

I try to follow the progress of these startups and almost inevitably ALL of them fail or continue as zombies. I’m not surprised because these startups normally churn through engineers who lose interest in their “equity” and lack of progress and drop out leaving their half finished code for the next schmuck to pick up.

Hence my curiousity…. has anyone ever made serious money joining a startup on this kind of arrangement?

 

 

  • Here’s how I’d like it to work:

    1) Initial pool of “FTE’s” splits the company equally (maybe with a cash invested differential, maybe not), including the founders and what have you– totally flat. These people must be as aligned as a group of people as it is possible for people to be.

    2) If there are 100 shares 1 share entitles a person to 1% control and 1% of dividends.

    3) Dividends are paid Monthly.

    During the initial period, there won’t be dividends (“Paychecks”) for a while. People have to know this going in and be prepared for it.

    Feedback greatly appreciated :).

    Benefits I see: Everyone has something at stake. Everyone wins big if the company wins big. This clears the way for an all-owner company.

    Downsides: Some people are bound not to understand or assume bad intent.

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  • It never worked for me. I don’t know anybody for whom it worked. I never heard about somebody who got money with that.

    This is the desperate call of a wannabe CEO to engineers working for free. You must be stupid to accept that. Only stupid young engineers accept the deal, and because they are stupid, the startup always fail.

    Be a co-founder or don’t work for free at all. Sweat equity is possible only if there is a salary, possibly under par in this case.

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  • I accepted similar offer and wasted my precious one year on it. Initially the CEO come up with solution which involves huge technical challenges. After 2 months, CTO left the company. Later I built MVP’s for 7 different ideas of the founders. But none of them worked. I have spend my 12 months with them for 2% of the company. and I lived on a shoe string budget in that time. But I learned about startups and entrepreneurship in that time.

    Reply

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