How To Lose $300K In One Conversation08 Feb 2016
Will you work for equity?
After you have been consulting for any amount of time, you are bound to get asked this by a client. You may find yourself struggling to decide whether or not to take some equity or just get paid to work on the project like you normally do.
I had one such scenario a while back that I wanted to share. One day a few months ago, I was approached by a local VC in town. Our relationship falls somewhere between acquaintance and friend; let’s call him Joe. Joe has a very successful background and is one of the more wealthy people in my circle of influence.
Joe asked me out for beers to discuss a new opportunity for a mobile project. I, of course obliged and met him out. During this meeting, Joe proceeded to tell me about an application he wanted me to build that would be aimed at teenagers. The gist was:
They would create rooms and the "cool kids" could vote other kids in and out of the rooms.
The offer he made was 30% of the application ownership and profits and a small share in one of his existing startups. Given Joe’s history, I knew this would most likely be a successful endeavor, however I told him that I had to think about it. Given the nature of the app, I had some strong moral objections to creating a tool that would allow teens to ostracize each other. This didn’t quite sit right with me.
After taking a few days to think I it, I ultimately told Joe that I didn’t feel right about working on the application. He said “no worries”, and that was the end of that conversation.
6 Months Later…
Some time had passed and Joe and I eventually met up for beers. After a bit of discussion, he said “Hey, I wanted to tell you about that app”.
He then follows with “I found a college kid to work on the application and gave him the same offer that I gave you. I also had a designer do some very basic mocks of the application. While I was out on a trip to Silicon Valley, I mentioned the application to a good friend of mine at Facebook. Well, Facebook has a similar product coming out (turned out to be Rooms) and they decided to give me a quick check for $1.1mm to discontinue work on the product. I then wrote the college kid a check for $333K before he’d written a single line of code!”.
My immediate thought was “at least I still have my values”. It’s pretty funny to look back and think about how I could have made so much money so quickly. However, even if I had known the potential payout up front, I don’t believe I would have still taken the project. It would have eaten me up inside.
The takeaway of this story is twofold. First, I’d urge you to choose your compensation wisely. Before this encounter, I would always give a hard “no” when asked about equity share as part of compensation. I now take it on a person by person basis. Second, don’t compromise your morals for money. I look back on this story as a success and wouldn’t change a single thing about it.