Do you (as a developer) make passive income based on startup equity share?
Recently I watched a video of Kalle Hallden who gave income ideas for developers. One of his ideas was working on startups based on equity/revenue share, but I wonder, howmany developers actually make a passive income from that? And if you do I wonder what your proces was from finding that startup to actually work for it.
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I have done this once (contracted at a startup for equity instead of cash). It was a very unique arrangement, honestly only possible because of (a) a high-level connection, and (b) my reputation. I haven't done it since.
I doubt many serious/experienced operators, especially venture-backed, are going to offer revenue share to employees; it's just not common. And as an operator myself, I'll typically reserve all the equity I can for full-time hires, unless I'm seriously cash-strapped.
That said, you can always ask. In my case, we got ready to put a contract together, and I said, "I can afford some risk, want to structure this in equity instead of cash?" and they said yes.
Thanks for sharing your story!
If you don’t mind I would really like to ask you one more question.
Why do you think it’s uncommon to give a tiny bit of equity instead of cash? Are there just toot enough developers who want to do it, or do startups not want to do it? Or is it maybe the hassle of working with contracts?
Hi Dylan,
I think it boils down to a few reasons:
It's more complicated than cash, administratively, for the company. When my company hands out equity, I need to create a new allocation of options in the cap table; I need to (some day, potentially) manage the recipient exercising those options, or chase them down in a liquidity event; and my company still needs to pay taxes on it.
It grants additional rights. When your options vest, you become a shareholder. Shareholders have certain rights, and there are many reasons a company may not want additional shareholders, or you specifically as a shareholder. Compare this to a cash contract, where once the job is done, I can pay you and that's it.
It depletes a scarce resource. Generally equity & options act as a "higher risk, higher reward" type of incentive, and so they form an important part of offers of full-time employment. If I'm dispensing equity for work that could "just" be contracted out — i.e. work that isn't so important as to require a full-time hire, and to a worker I'm not interested in keeping around for the long term — I'm wasting a resource that could be more strategically spent.
This isn't to say it doesn't happen. In fact I'm sure many entrepreneurs make the mistake of overlooking both of the above (or just don't care), and hand out equity generously for contracts. It just isn't something I've seen or would do much of.
Good luck!
Thanks a lot for your response, I really appreciate it!
I personally would say never hand out equity to someone that isn’t going to be around longer, but I personally also think equity based working can be more.
Thanks a lot again!🙏
For sure! And though the status quo is what it is, I'm sure we'll see more and more worker-friendly changes & disruptions in equity distribution in the future.
I’ve been thinking a bit and I am going to test if there is a market for this. Soon I will launch a MVP, to gather signups. Making it as easy to pay in equity as paying in cash.