Which one would you you prefer and why?
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I will prefer equity because that in the long term is a big deal should the idea work out.
Depends on a lot of things
Employee with Stock Options for me. I can always diversify without worrying about founders business.
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With the benefit of hindsight, I would first say if you are considering an offer, just ask for a fair pay for your contributions, take your money and work on your own passions. Equity is only good if you and the founder can go the distance together. Partnerships aren’t easy, and even harder in our kind of society, where cheating and distrust is so rife. Our egos always get in the way, as does peer and family pressure telling you that you are being ‘shortchanged’. The truth is that business partnership partnerships are almost like a marriage.
In my view, partnerships work under two broad conditions:
- When you and your partners have deep common interests that override other considerations. It could be the love of the industry e.g technology, media, fashion etc. It could be religious, it could be a desire to touch lives. So that in order to achieve the goals you’ve set out, you can spend sleepless nights, eat with and fight with this person and still go on due to your higher objectives. Do your equity partners have deep or long ties, such as growing up in similar circumstances, going to school or living in the same neighbourhood with each other? Have you gone through trying times or adversity with this person or people? These are things that can help you when things get tough and allow you overcome the inevitable disagreements.
Or 2. Is there a very clear difference in experience, contribution or skill level between equity partners? When this is the case, chances are that everybody is clear about his or her role so there is little room for confusion which causes conflict. For example, if you and Mr Dangote enter into an equity partnership and he gives you 5% as sweat equity due to your skills, only a ver narrow-minded person would complain about that as Mr D brings so much more to the table aside from capital.
These factors aren’t a guarantee but they will increase your chances that equity partnership will work.
Partnerships also fail also because equity holders have loyalties to other people. An insecure and possessive spouse can negatively influence an otherwise bright entrepreneur and cause him or her to make ultimately bad choices. A friendship that influences an entrepreneur against the interest of the business can also cause severe problems. For example, your drinking buddies telling you that you deserve more because you ‘do all the work’ or you are ‘sharper’ than your partners.
So in summary, I would say just ask for a fair remuneration as at when due and pursue your own interests rather than someone else’s dream, except you are sure you guys can go the distance together.
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