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Dec 03 2014

Why We Don't Do Work for Equity Deals

At MojoTech we're lucky to be able to work with big and soon-to-be-big companies to design and develop a broad range of digital products. Oftentimes, we're approached by soon-to-be big companies who have great ideas but need our technical know-how to make them a reality. They're passionate about their projects but haven't raised the money they need to provide an adequate design and development budget. In some cases, depending on the strength of the team, and the idea we're happy to negotiate a lower rate to make our services more affordable.

Many companies have accepted these reduced rates and have gone on to build successful businesses. As a result of their success, they come back to us for additional work. It's a win-win.

On a few occasions, however, I've been asked to work out some kind of work for equity deal. One in which we would render design and development in exchange for an ownership percentage in the company. A not uncommon way for young startups to leverage resources.

While it's a tempting proposition, we avoid those types of compensation structures. There are three main reasons:

  1. We re-invest the profits from our services business into training and development, and into building our own products. At our size, we can't invest in as many things as we'd like, and must be laser focused.

  2. We want to avoid the potential, or even perception, that we may be treating clients differently based on having an ownership stake in some but not others.

  3. We're firm believers in lean principles for product development. In most cases, we end up advising our clients to do less than they had originally planned, and then to test and reiterate based on feedback received. Having ownership could reduce the weight of our advice when we encourage clients to "do less". Right now that means we get paid less, so there is clearly no conflict.

As we've grown we've been taking on bigger clients. But we still really love working with the early-stage companies and will continue to find ways to offer reduced rates to work with them.

~ Nick Kishfy @kishfy

Nick Kishfy