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Thoughts on offering equity as opposed to contracting out for pre-market technical website work

I have a healthcare tech startup that has MVP at this point.  But (semi-big but) we still need expert coding along with UX and UI to complete a website connection. Right now the product, a real time medication monitoring system, can transmit the data to a bare bones URL hosted site, but this is not scalable as is.  We are in a strange place, because we have a market waiting for us by sheer luck and a little persistence, along with a 10 month runway and pilot program  that we have set up before market introduction.  


My inclination is to bring an IT/coding expert into the team with the incentive being offering equity for the effort.  The alternative would be to simply contract out the work to a coder/web designer and keep the equity.  My thought is equity would give incentive to the person to work efficiently, and maybe provide the best work product, along with long term solutions for CTO.  I just don't know if this is a route that many people see as a viable way to  manage milestones.  I've contracted technical experts out like these before on other projects and got burned so I'm willing to give up some equity if I can get better results.  I obviously believe its a great opportunity, but I am biased, and I'm not sure even what would be a good incentive equity wise.  (And I know saying your startup is a great opportunity is like walking in a prison and asking everyone who is innocent to raise their hand, there isn't a hand down in the whole cell block).


So is equity a good idea, and if so what percent would provide a good incentive.


Grady Toombsposted 20 days ago

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Wil Schroter

How about a Hybrid?  Offer 50/50 to help cut your cash burn but also include some incentive.  


I think when you lean too heavily on either direction you get in trouble.


Per what Ed's saying below, though, I would also consider that the equity isn't actually distributed (vested) until major milestones are hit.  I see a ton of people giving out equity early before any real work is done.

Reply19 days ago

1 Replies

Ed Kang

Equity is the most expensive compensation you will offer, and it is generally a bad idea to offer it because you need services you could have paid for. But it all depends on the amount of equity. If you plan on raising investment from serious investors, you will eventually be asked to defend your cap table. The only time I ever offer equity is if I can secure an advisor who moves the needle, securing long-term employees or cofounders. I always try and pay for it upfront. If I don't have the money, I find other ways to generate revenue and pay for it.


When I do trade equity for services, I ensure it is a long-term relationship with strategic value. And then I only offer up to 1%. I may offer 1% per year if they stick around. These are only my personal preferences. I hope that helps.

1 Replies