A Piece of Myself: Start-up Use of Equity in Payments for Critical Services

Abstract

Start-ups are often in need of external help to grow but do not have the cash to pay for critical services. A solution to this problem is to hire technology or strategy consultants and use equity as payment. With equity payments, the service provider also becomes an investor and a partner in the start-up. By interviewing consultants, investors, and start-up entrepreneurs, this study explores the challenges associated with equity payments, and it identifies situations when equity payments can be a viable solution. We propose that consultancies require a risk-seeking mindset and a business model that supports long-term investments in clients. Further, we propose that consultancies’ inclination to accept equity payments increases when the entrepreneur has industry specific experience. The start-up entrepreneur’s inclination to accept equity payments increases when they lack experience of running a start-up, and when the start-up has not yet shown a proof of concept. Even though the long-term viability of equity payments for critical services remains to be determined, it is an option worth taking into account by start-ups in need of assistance.