Resources Paying for it
Sweat equity for non-technical founders: how it works and where it goes wrong
Sweat equity means paying someone with shares instead of cash. For a founder without a budget it sounds like the answer. Sometimes it is. Often it is the most expensive deal you will ever sign.
What sweat equity means
Sweat equity is ownership earned through work rather than money. A developer, designer or advisor contributes their time, and in return receives shares in the company. No cash changes hands, or much less than the work would normally cost.
How the deals usually work
- Vesting. Shares are earned over time or against milestones, not handed over on day one. A common pattern for cofounders is four years with a one-year cliff. For a defined build, vesting against delivered milestones often makes more sense.
- A written agreement. What is being delivered, by when, what happens if the person leaves, and who owns the work.
- IP assignment. The company, not the individual, must own the code. Without this, the shares buy you very little.
How much is fair?
There is no standard percentage, and anyone quoting one is guessing. It depends on how much risk each side takes, how much cash is involved, how long the commitment is, and what the work would cost on the open market. Two useful tests: would you be comfortable if this person held that stake in five years and had left after one? And what would the same stake be worth to an investor?
When it makes sense
- The person will be part of the company for years, not just for the build.
- You have validated the problem with real customers, so the shares are worth something.
- There is still some cash in the deal. Even a modest amount shows commitment on both sides.
Why zero-cash deals often fail
When nobody is paying for the time, the work gets fitted around paying work. Deadlines slip, priorities drift, and the founder feels unable to push because "they are doing it for free". Months later the product is half-built and a meaningful part of the company is gone. This is why we always combine any equity with a paced cash fee.
Red flags
- Shares issued upfront, with no vesting.
- No maximum on the stake, or a stake that can grow with scope changes.
- Vague deliverables or no timeline.
- No IP assignment clause.
- The builder asks for board seats or veto rights on a minority stake.
Tax: ask an adviser early
Shares received in return for work can be taxable for the person receiving them, and the structure matters. In the UK, issuing shares below market value can create an income tax charge; in the US, founders and contributors often file an 83(b) election when shares vest over time. Rules differ by country and change, so take advice from an accountant before shares are issued, not after.
Where we stand
We are not an equity-first studio, and we are not investors. Equity appears only in two of our tracks, always alongside cash and a capped revenue share: an optional minority stake on Founder's Path, and a technical-cofounder stake on Studio Bet. In both, the maximum is fixed at signing, it vests against delivery, and scope changes never raise it. Read cash, revenue share or equity for how the options compare.