Will You Work for Equity in Lieu of Cash

I've been speaking with a healthy number of startups who are looking for engineering talent of some sort but who also have the shared condition of cash constraints.  As you can probably guess, cash is the lifeblood of any early stage (read: prerevenue) venture and the conservation of that precious element is always at the forefront of founders minds.

Risk vs. Reward

Risk vs. Reward

What to do?

"Well we have equity - let's use that"

Great, except for the fact that most startups fail.  This is no longer a closely held secret - it's out there in popular literature.  It means that trading time for stock isn't as attractive as it once was.  That and it's an engineers market today as there just aren't enough of them to go around.

Engineers are also getting a whole lot smarter on the business side of things. While free pizza and beer are certainly good things, they don't pay the rent. Lately I've been hearing the more savvy engineers ask questions of the ilk:

  • tell me about the structure of the cap table
  • what sort of valuation do you have and how was it arrived at
  • what do the liquidation preferences look like

While it's refreshing to see the non MBA types grok the stock scene, it certainly doesn't make the only non-cash incentive a startup has behave like a superconducting magnet for engineers (TM).

My observation is that the startups who find themselves in such a cash strapped condition might also be a manifestation of the popularized Series A Crunch. If they can't raise money, they can't hire talent and won't survive. 

Problem solved through attrition.

All ventures left standing better get their checkbooks out.