Consultants doing work for startups rarely seem willing to give a significant discount in exchange for equity. Equity should be more worthwhile for them since they can diversify it much more than founders. Is the average return of a startup (not just the median) worth so little? orig. question on Quora
Dan Walter’s Answer
This is a great question. I am happy to work for equity given the right circumstances. But…
Many consultants will work for equity, but you must remember that consultants must also pay their bills. Most consultants are self-insured and must make payments on a monthly basis. Consultants usually have office and living expenses (most people are unlikely to hire a homeless consultant that works out of a bus stop, no matter how great a story it would make down the road.)
The key for any consultant is a balance between projects that may cash and those that pay in equity.
A small contract paid in equity, with a large potential upside is often fine. Often very early stage start-ups want high-end help with no upfront fees. While they are CERTAIN there idea will be “bigger than the internet” or “more successful than Instagram”, the reality is that most of these companies will not make it to a valuable exit event. That means the consultant worked for free. Some of us can take on a few projects like this each year, but only an independently wealthy consultant can make this the basis of his work portfolio.
A multi-month project that may be a significant portion of a consultants work for the year. Giving up cash for equity in this scenarios would usually require a fair amount of certainty that the equity will convert to cash fairly quickly.
The very large law firms will often work for equity because, like VCs and big Angels, they depend on large volume to make up for the risk of loss. They know that a few of their portfolio companies will end up paying the bills of the ones that fail or take forever to succeed. Boutique providers and individual consultants don’t always have this luxury.
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