You send a proposal for $12,000. The founder replies: "Would you consider taking part of this as equity? We're early but the upside is massive." It's the most common startup negotiation tactic — and one of the hardest to evaluate objectively. Here's how to think about it.
The math: most startup equity is worth $0
Let's be blunt. Roughly 90% of startups fail. Of the 10% that survive, most don't generate meaningful exits for anyone below the C-suite. The expected value of startup equity for a freelancer, on average, rounds to zero. Don't let outlier stories (the designer who got 1% of Airbnb) override the base rate.
This doesn't mean "never take equity." It means treat equity as a lottery ticket, not a paycheck. Your cash compensation should cover your bills. Equity is for the upside — and you should only take it when the upside is plausible.
The framework: 4 questions to ask before taking equity
- Is the equity in addition to a fair cash rate?
If the founder is offering equity instead of paying your normal rate, it's a hard no. Equity should be layered on top of a baseline cash rate that works for you. A reasonable split: 70–85% cash, 15–30% equity. If they can't pay at least 70% of your rate in cash, they can't afford you — and they probably can't afford to build the company either.
- Do they have real funding or traction?
Equity in a company with $2M in funding, paying customers, and a clear path to revenue is very different from equity in an idea-stage company with no customers and a founder who's "bootstrapping" (translation: has no money). Look for:
Actual revenue (not "we're pre-revenue but the pipeline is strong")
Institutional funding from a known investor (not a friends-and-family round)
Customer traction you can verify (product in market, real users, not "we have 500 waitlist signups")
Equity in a company that checks all three boxes is worth considering. Equity in a company that checks none is a volunteer gig with extra paperwork.
- What exactly are they offering — and is it in writing?
"Some equity" is not an offer. Neither is "we'll figure out the details later." A real equity offer includes:
Number of shares or options — or a specific percentage of the company
Fully diluted percentage (what you actually own after all outstanding options/convertibles are counted)
Vesting schedule (standard is 4 years with a 1-year cliff)
Exercise price (for options) and what happens if you leave
All of this in a signed stock option agreement or restricted stock purchase agreement
If the founder can't or won't put numbers on paper immediately, the equity is a negotiation tactic, not a real offer.
- Would you invest your own cash in this company?
Taking equity instead of cash is equivalent to investing your fee into the company. If you wouldn't write a check for $3,000 to invest in this startup, don't accept $3,000 worth of equity instead of cash. The bar should be the same.
What to put in the contract
If you decide to take equity, your freelance contract needs explicit equity compensation terms. The Startup Freelance Contract Pack includes a full equity section that covers:
Number of shares/options and vesting schedule
What happens to unvested equity if the engagement ends
Information rights (so you can actually track what your equity is worth)
Tax treatment (and who's responsible for filing 83(b) elections)
A deadline for the startup to deliver formal equity documentation
Don't start the work until the equity section is filled in and signed.
The bottom line
Equity can be life-changing — but only in the rare cases where the startup succeeds, the terms are fair, and you hold enough to matter. Treat it as a bonus, not a substitute for cash. And if a founder gets defensive when you ask specific questions about equity terms, that's a signal about how they'll handle every other difficult conversation in your engagement.
This post originally appeared on Freelancer Kit, where you can find the Startup Freelance Contract Pack — contract templates built for freelancers who work with startups.
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