Fee plus equity: how building software for part equity works

Some development firms will take part of their fee as shares in your company instead of cash. It is sometimes called sweat equity or tech for equity. Here is how it usually works, and what to settle before you sign.

The usual shape

A reduced cash fee, paid as the work is done, plus a shareholding for the rest. Very few credible firms build for equity alone; the cash part covers their costs while the shares carry the risk.

What to agree in writing before any work starts

• The percentage, and whether it is earned in stages as work is delivered or granted up front
• Whose company it's in. The stake should be in your operating company, not in the code or a separate vehicle
• Who owns the code and IP. Your company should, from the start, with the code in your own repository
• What happens at your next funding round, and whether the developer has any special rights
• What happens if the work stops, on either side
• Who the people are. Meet the engineers and the lead before you sign

What a stake should buy you

A partner who stays. A firm with shares in your business has a reason to keep the product working after launch, to run it well, and to tell you when something isn't worth building.

When it's a bad idea

If you have the cash, pay cash and keep the shares. If a developer wants a large stake for a small first version, walk away. And if a firm will only take equity and no cash at all, ask how they pay their engineers.

A UK startup solicitor should read the agreement

This article is general information, not legal advice.

Related: Equity partnership