I have been considering this approach for a project I am about to embark upon and would like to hear from other programmers about their experience in contributing code for equity. Has anyone been truly successful in such an endeavour.
Disclaimer: This is a one eyed dissertation from a hardened cynic.
In my mind equity is about as valuable as a lottery ticket. Would you trade your code for one?
We all hear about the guy who got given a a 10% stake in Acme corp for a bit of code, a few years later he sold his stake and retired to a remote Pacific atoll full of beautiful young ladies and lived happily ever after........
In reality what happens to the other 99.9999% is that 90% go nowhere. The remaining 9.999%, the company 'succeeds', but by the time its been through a couple of funding rounds, has paid the mortgage and the share holder has paid his legal fees, the original 10% has been whittled down to 0.1% and he walks away with a couple of grand or so. If you work out the hourly rate for the equity stake (you are not an employee anymore, you will be expected to pull 80-100 hours weeks to save your investment) is comes in around $1.00/hour. Sometimes when you try to sell you equity, you find the attached strings mean they are worthless...
By all means, go for it, it suits some people, but do so with you eye open. If you don't have an ounce of business acumen, don't do it.
Avoid like the plague would be my advice.
View it as a cake. As more people join (or more shares are issued), your slice will get smaller and smaller. There is nothing you can do about this.
Yes, everyone knows a friend of a friend of a friend who this sort of arrangement has worked for - but strangely, nobody ever knows the individual personally...
That isn't to say that the cake itself doesn't grow - it does (or should!). Just that it never (or rarely) grows enough to make your share profitable vs an hourly rate/salary.
Consider this like an investor who is considering investing money into a startup business. Is it a good bet?
- Work out a cash value for your time, using some appropriate salary or hourly rate.
- Try to assess the possible payback from the investment. You'll probably be looking at a smallish chance of a largish return. Does the business model make sense to you (can you imagine them making large amounts of money)? Will the founders be personally convincing to future customers and investors?
- Are you willing to take a risk? What's the downside? This will probably depend on your personal circumstances. E.g. if you have dependents and few savings, maybe it's not a good idea. If you have no dependents and some savings, maybe it is a good idea.
- Does the project excite you? Will it at least look good on your CV if it all goes wrong?