The Startup Can't Pay You, But It Can Give You Equity. Now What?

I've spent a lot of my career working with entrepreneurs, startup founders and people who are very good at something but need help turning it into an actual business.

One conversation that comes up fairly regularly goes something like this:

A founder has an interesting idea. Maybe they've built a product or have some early customers. They clearly know their industry, they're passionate about what they're doing and there's a reasonable argument that the business could become something valuable.

But there are gaps.

They need help figuring out the business model, building the operating structure, creating a go-to-market strategy, raising money or simply getting the company to function like a company.

They recognize that experience would be valuable, but they're also short on cash.

So eventually the conversation turns to equity.

“We can't really afford to pay you what you're worth right now, but we'd love to give you a piece of the company.”

I've been on both sides of that conversation, and I actually like the concept. I think some of the best opportunities for experienced operators involve taking ownership in something they help build rather than simply collecting a fee.

But I've also developed a healthy skepticism about equity offers.

Not because ownership is bad. Quite the opposite.

It's because a percentage of a company and something of actual value are two very different things.

And if you're an experienced operator considering trading meaningful time, relationships or expertise for equity, you need to understand the difference.

Equity is not a substitute for having a business model

Let's start with something that probably sounds obvious but gets overlooked surprisingly often.

A startup's inability to pay you doesn't automatically make its equity valuable.

Sometimes the lack of cash is perfectly understandable. The company is early, resources are limited and every dollar needs to go toward product development or customer acquisition.

That's the nature of building a business.

But sometimes the company can't pay you because it hasn't figured out how to generate revenue, has no credible financing strategy or doesn't yet have a business model that makes much sense.

Those are very different circumstances.

I've always thought there was a fundamental difference between helping a promising company through a capital-constrained period and subsidizing a company that hasn't figured out whether it should exist.

The first can be an investment of your experience.

The second can turn into a very expensive hobby.

When somebody offers me equity, I'm interested in understanding the underlying business before spending much time negotiating the percentage.

Who is the customer? What problem are we solving? Why will someone pay for it? What has been validated? How much capital will the company actually need? And, perhaps most importantly, what specifically am I going to do that makes the outcome better?

If we can't answer those questions, talking about whether the equity should be 2% or 4% feels a little premature.

Not all equity relationships are created equal

One thing that bothers me about a lot of the advice around startup equity is that it tends to lump very different relationships together.

There's a meaningful difference between being an advisor, a consultant, a fractional executive and a venture-building partner.

An advisor might spend a few hours each month helping the founder think through decisions, make introductions or pressure-test strategy. That can be enormously valuable, but the advisor generally isn't responsible for running the company.

A consultant usually has a defined assignment and is compensated for producing something specific. Maybe it's a financial model, marketing strategy, product roadmap or fundraising package.

A fractional executive is a different animal. That person may be helping make operating decisions, managing people, building infrastructure, overseeing budgets and taking responsibility for meaningful business outcomes.

And then there's the venture-building relationship, where somebody is helping create a business that doesn't fully exist yet. Their contribution may span strategy, capitalization, positioning, company formation, partnerships, talent and execution.

Those are not interchangeable contributions.

Yet I've seen how easily the conversation can turn into, “What's the standard equity percentage for an advisor?”

That's the wrong place to start if the expectation is that somebody will function as part of the executive team.

The Founder Institute's FAST agreement is a useful framework for conventional startup advisory relationships. But even its creators distinguish that model from consulting or work-for-hire arrangements.

If somebody wants you inside the company helping build and operate it, the discussion needs to reflect the actual responsibility you're assuming.

Before you negotiate the percentage, define the job

This is where I would spend most of the early conversation.

What are we actually trying to accomplish together?

Let's say a founder wants help turning a promising product into a functioning commercial business.

There might be a dozen things that need attention: pricing, customer validation, go-to-market strategy, capital planning, the investor story, staffing, partnerships and operating systems.

It's tempting to say, “I'll help with all of that.”

And you probably will.

But that's not a particularly useful agreement.

Instead, I'd want to identify what needs to happen during the first 90 days and which parts I'm actually responsible for delivering.

Maybe the initial work is validating the commercial model, establishing the operating budget and building a realistic plan to reach the first paying customers.

Maybe it's preparing the company for fundraising.

Maybe it's building the leadership structure and creating accountability around execution.

Whatever it is, I'd rather have a clear starting point than a vague promise that we'll figure things out along the way.

That matters for the founder, too.

Giving somebody equity because they seem smart, experienced and well-connected isn't much of a strategy. You should have a reasonable understanding of what the company is receiving in return.

Two percent of what, exactly?

Here's another question that needs more attention than it usually gets.

Let's say a founder offers you 2% of the company.

Sounds straightforward.

But what does that mean?

Is it 2% of the company as it exists today, calculated on a fully diluted basis? Is it actual stock, stock options or an LLC interest? Does it vest over time? Are there conditions attached? What happens when the company raises money and issues additional shares?

And what happens if you help build the company for six months, but the relationship changes?

That last question is particularly important.

Startup relationships evolve. The founder you meet today may need a very different kind of help a year from now.

Maybe the business raises money and hires a full-time COO. Maybe it pivots. Maybe your role becomes more advisory. Maybe one of you decides the relationship isn't working.

None of those outcomes necessarily means anyone did anything wrong.

But if you've already invested hundreds of hours helping create the business, you should both understand what happens to the ownership you've earned.

There is also a difference between a percentage on paper and money you might receive in a transaction. Future dilution, debt, liquidation preferences and the terms of an eventual sale can all affect the economic value of that percentage.

These are the details that can turn a seemingly simple handshake into a complicated conversation several years later.

I like equity that gets earned as the business gets built

One structure I'm particularly interested in is tying some portion of ownership to meaningful contributions or milestones.

Not everything needs to be structured this way. Sometimes time-based vesting makes perfect sense, especially when someone is taking an ongoing leadership role.

But for a venture-building relationship, I think milestones can create some healthy alignment.

For example, suppose you're helping an early-stage founder commercialize a product.

You could structure the engagement so that a portion of the equity is earned for completing a defined initial workstream. Another portion might be tied to an approved commercial launch plan, hiring a critical leader or delivering an operating system the company can actually use.

The key is to define outcomes that are concrete and reasonably within your influence.

I would be careful about making all compensation contingent on something like closing a funding round. Fundraising depends on the market, investor decisions and a variety of things neither the founder nor the operator can fully control.

You can do exceptional work preparing a company for investment without having any authority over whether someone ultimately writes the check.

I prefer structures that recognize the difference between doing the work and controlling the outcome.

And the milestones have to be written down. “Help grow the company” isn't a useful contractual milestone, no matter how good it sounds in a meeting.

Sometimes cash and equity together make more sense

I'm a fan of hybrid arrangements because they acknowledge two different types of value.

The cash component compensates somebody for the work being performed today.

The equity component creates participation in the value that work may help create tomorrow.

That's not the only structure that works, but it's often a healthier starting point than asking an experienced operator to work indefinitely for ownership that may never become liquid.

Consider somebody who normally commands a meaningful consulting or executive fee. If they're committing substantial time to a startup for little or no compensation, there is a real opportunity cost.

That's time they cannot spend with paying clients, building their own company or pursuing other opportunities.

And that cost doesn't disappear simply because the startup has an exciting pitch deck.

There's nothing wrong with consciously making that investment. In fact, it may be exactly the right decision.

But I think it's important to recognize that you're making an investment.

You're investing your time, experience, relationships and the income you could have earned elsewhere.

The fact that no money changes hands doesn't mean the transaction is free.

What would I want to know before saying yes?

Beyond the commercial opportunity, I'd want some clarity around the relationship itself.

First, who is actually making the decisions?

If I'm going to be responsible for operating outcomes, I need enough authority to influence them. It's difficult to accept accountability for something when every meaningful decision still belongs to somebody else.

Second, what information will I have access to?

An operating partner needs to understand the company's financial position, commitments, ownership structure and obligations. You can't operate effectively if you're working from an incomplete picture.

Third, how much time is the founder expecting?

A few hours each month is one thing. Being available for daily decisions, team meetings, investor calls and operational problems is another. The equity conversation should reflect the real commitment.

Fourth, what happens when the company needs something different?

I don't think every equity relationship needs to be permanent. In fact, the best thing an early operating partner can do may be to help build the company to a point where it can hire a full-time executive.

That's a good outcome, not a failure.

But it's worth thinking through before it happens.

Finally, what happens to the equity when the relationship ends?

That's not a pessimistic question. It's simply part of structuring a business relationship professionally.

The agreement also needs appropriate legal and tax review. Actual shares, options, LLC profits interests and contractual profit-sharing arrangements can have very different consequences. For certain restricted-property grants, an IRS Section 83(b) election may be relevant, with a filing deadline generally 30 days after the property is transferred. The IRS provides Form 15620 and related guidance.

I'd much rather spend a little money getting that right at the beginning than have a substantially more expensive problem later.

Here's another way I think about the decision

Instead of asking whether the equity percentage sounds attractive, imagine that you were going to invest the equivalent value of your time in cash.

Would you do it?

If you're contemplating six months of work that would normally earn you $50,000, you're effectively making a significant investment in that business.

Would you write a $50,000 check based on what you currently know?

Would you invest in that founder?

Do you believe in the business model?

Do you have enough information to understand the risks?

Can you meaningfully influence the company's chances of success?

If the answer is no, I wouldn't automatically assume the investment makes more sense simply because you're contributing services instead of money.

Sometimes that framing changes the conversation pretty quickly.

It also helps separate the opportunities you genuinely believe in from the ones that are simply interesting to talk about.

There are a lot of interesting startups.

There are far fewer that deserve a significant commitment of your time.

The founder has to think about this differently, too

Everything I've written so far could sound like advice for the operator receiving equity, but I think founders need to be equally thoughtful.

Giving away part of your company is a consequential decision.

If you're offering equity because you need an experienced executive to help build the business, be clear about what you want them to own.

Don't give somebody a meaningful percentage simply because they have a great résumé or know investors.

And don't expect somebody to behave like a cofounder while treating them like a vendor.

If you want real operating commitment, you'll need to provide real access, trust, decision-making authority and a clear understanding of the relationship.

That can be uncomfortable for founders, especially when they've been making every decision themselves.

But it's part of bringing someone inside the company.

The best arrangements I've seen are the ones where both parties recognize they're building something together, even if their original contributions are very different.

One brings the original insight, invention or business.

The other may bring commercial experience, infrastructure, relationships and the ability to get the company operating.

Neither contribution automatically makes the other less valuable.

The challenge is structuring the relationship in a way that recognizes both.

A better way to start

I increasingly like the idea of beginning with a defined 90-day engagement rather than immediately trying to negotiate a permanent relationship.

Figure out what needs to happen over those three months.

Define the responsibilities, decision rights and measurable outcomes.

Agree on how the initial work will be compensated, including any equity that will be earned.

Then use that time to learn whether the opportunity is as good as it looked, whether the founder and operator work well together and whether a longer-term relationship makes sense.

There still needs to be a proper agreement from the beginning. The point isn't to work for free for 90 days and hope things get sorted out afterward.

It's to avoid making a permanent commitment based on a couple of promising conversations.

If it works, you have a much better foundation for discussing the next stage.

If it doesn't, both parties have a reasonable way to move on.

Equity should be the result of building value, not the consolation prize for not getting paid

I'm probably more interested in ownership opportunities today than I was earlier in my career.

After spending decades helping companies grow, there's something appealing about having part of the value you create show up in an asset rather than just another invoice.

That's really the thinking behind Buildside.

But I'm not interested in collecting random percentages in companies simply because someone offered them.

I'd rather have meaningful ownership in a smaller number of businesses where I understand the opportunity, believe in the people and can genuinely contribute to the outcome.

Sometimes that means taking equity.

Sometimes it means cash and equity.

Sometimes the right answer is a straightforward consulting engagement.

And sometimes the right answer is walking away.

The goal isn't to get as much equity as possible.

It's to build and own things that have a reasonable chance of becoming valuable.

Those are two very different objectives.

Is there an opportunity worth building together?

Buildside works with founders and experienced operators to validate opportunities, structure the business and build the operating infrastructure required to turn an idea into a company. Sometimes that relationship is advisory, sometimes it's embedded leadership, and sometimes it's a deeper venture-building partnership.

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Brian Cross is a founder, operator, investor and embedded executive who has spent 25+ years building companies from inside the work.