Questions

It depends on the potential for growth of valuation in your business. If 5 years from now, you think you think "moderate" success is most likely (a few million in ARR as a Saas business as just one example), then using your equity to buy services might actually be *worth* it.

But if you're pursuing a fast-growth, VC backed business where you aim to create a 50x return (minimum) on your current valuation, then spending on services with equity is really not advisable, or at the very least, I'd recommend you do it very sparingly.

I would also say that the absolute maximum in a venture backed business that is tolerable for a good cap table would be 8%. Tipping beyond that leads to a messy cap table and lots of small share holders, which you generally want to avoid.

Finally, I'd be sure to get your Service Level Agreements really nailed. Meaning, you want them to commit to a minimum number of hours that equates to the right valuation, and have provisions for these shares to be canceled in the case that you dismiss them before they create full value.

Happy to talk this through in more contextual detail to your business in a call.


Answered 10 years ago

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