The Equity Fallacy

Posted Nov 06, 2023
2 min reading time

In the fast-paced world of startups, the journey to success is fraught with uncertainties. Startling statistics reveal that only a mere 1% of startups manage to reach the coveted IPO stage, with a significant number meeting their demise within the initial five years[1].

The idea of working for equity alone is a double-edged sword, raising questions about the feasibility and motivations of those with extensive technical expertise considering this path.

But why this pervasive skepticism? Let’s delve into the diverse personas you might encounter when contemplating equity-only arrangements.

1️⃣ Imagine you are a seasoned expert with over two decades of experience, bearing substantial responsibilities, and a family to support. Why would you even contemplate, let alone afford, the notion of working solely for equity?

2️⃣ Conversely, a student or junior professional with only a few years of experience might be enticed by the prospect of becoming a CTO. However, such limited expertise might fall short of meeting the standards for a technical leader. Would you feel confident investing in a product guided by such a newcomer?

3️⃣ Perhaps you hope to find an individual with ample passive income? In that case, consider this: Why would such a person not prefer to establish their own venture?

Equity-only offers come with a considerable risk – the technical co-founder you secure may either abandon the project halfway through, or in unfortunate cases, remain until they've secured their full equity without delivering substantial value, leaving a trail of low-quality work behind.

So, what alternatives do you have?

Discovering skilled individuals to handle operational aspects at a lower cost than a technical co-founder is feasible. You don’t necessarily require a full-time CTO to optimize the technical facets. Initially, what you need is someone to establish processes, carry out regular check-ups, and provide valuable advisory and mentorship.

The good news? Finding such individuals is easier than you might think; simply look for the term ‘FRACTIONAL!’

  1. 40-70% of startups fail within the first 5 years. ↩︎

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