Offering Developers Startup Equity, A Dialog

I have this conversation about once a month, generally by a well-intentioned dreamer new to the software space who doesn’t understand why I can’t accept projects for equity. I may be exaggerating slightly, but it sure feels this way…  🙂

Preston: Hi Bill, nice to meet you. How can we help you develop your online venture?

Bill: I have a unique web startup opportunity worth $4B and am accepting HTML experts to implement it.

Preston: [immediately suspicious of the phrase “HTML expert”] Ok, you have my attention. What’s the business plan?

Bill: It’s essentially a combination of eBay, Facebook…

Preston: [senses where this is going]

Bill: …Slashdot and TheSuperficial.

Preston: It’s a news and auction site for celebrity social networks?

Bill: No no no, it’s more like Google meets MySpace.

Preston: Like.. Orkut?

Bill: Kinda, but simpler.

Preston: [completely confused] Back to the business plan part for a minute. Could you tell me about the nature of the business? Is this an ad-based site?

Bill: No.

Preston: Ahh, ok. Some sort of subscription thing then like Salon or TheOnion?

Bill: No way. Users hate paying for stuff. It’ll affect our bottom line. We’re going to keep it free for everybody. And green. We should probably add a database of sites using ecological products. And videos, of course.

Preston: [now confident of where this is going] Let me restate the question. Where did that $4B figure come from?

Bill: YouTube was bought out for $18B. Google will be all over this after we capture 10% market share.

Preston: [completely ignores the issues with those two sentences] I see. To be completely honest, I should share a couple general thoughts. [brings up telephone script #4 from personal wiki] We haven’t talked about budgets at all, but I assume this is an equity-share idea, and I’m really honored you thought of us. There are a lot of great people out there, and I’m happy and thankful to have stood out. Unfortunately, we’re not accepting equity-based projects at this time for two primary reasons. First–and again all in frank honesty–we have the technical, business and other resources to implement these things on our own without external partners. We have a lot of great ideas, and it makes the most sense for us to pursue them internally. Secondly, it’s our goal to treat employees the way we all want to be treated: with respect, recognition and great benefits. That comes with cash flow requirements we just can’t meet with equity-heavy relationships. I’m going to email you some contact information for other resources you may want to follow up with directly, and I think you’ll find that reputable software engineering shops will share these two sentiments in common as a matter of prudence. We look forward to working with you in the future, however, and we’ll keep in touch periodically to check up on you!

[exchange of pleasantries]