hiringI’m trying to start a tech company but I have no funds. I kinda feel uncomfortable to bring developers on board and tell them that there is no pay and we might not be profitable for quite a long time so we have to just work for free. How do I justify this? Does giving equity really justifies this?
Yep, equity justifies it.
There are two things to really keep in mind when you’re approaching this:
Ultimately, like anything, I think the key here is to be clear. Don’t mislead potential hires into thinking that they’ll make it big next month. But if you’re clear about your plan and how you expect to make money, and if you can convince people with the truth, you’ll be doing fine. Just try to keep it fair, and you should be alright ethically.
As for the potential awkwardness of offering someone no cash, that can be tough, but I think again the solution is just to be honest. Don’t fish for people in hiring pools where they’ll require cash, and don’t lure people in on the promise of a sustainable young company that’s actually only in its infancy.
These days, there’s so much excitement around startup culture with developers who see companies like Facebook and Twitter, that if you’ve got a good idea, you’ll probably be able to find someone willing to work for equity.
In fact, in many cases, you’ll find enthusiastic people who actually help to shape your company in much more productive ways than someone who’s just after a paycheck. That’s not always the case, definitely, but it can be.
You say you have no funds to pay developers to come on board. You also try to rationalize giving equity in exchange for their help to build your company.
You are missing a third option:
Presell your idea to prospects. If your business idea/service/product is valued and demanded by people, you are certainly within the realm of asking for money up front to help develop the product. You likely have reservations about doing this, but you want people to kick your business idea around in the early stage. You WANT feedback as early as possible. Asking for money upfront reveals the reasons why they DON’T want to buy your yet-to-be-built idea/product/service, and you use this feedback to iterate on your offering.
Once those few early presales start happening, you are on to something. You’ve found that product-market fit and can work to get more presales until you have enough money to start development.
Lack of funds should be no reason to move forward on your business.
If they are not people you know it will be a really really hard sell.
No good developer is going to work for an unknown party for free even if you gave them half the company. It is not just no income - a firm that cannot raise money is big risk. If you cannot raise angel money to fund developers you don’t have a startup.
Both of these existing answers are opposite of each other. Yet, they are both correct.
This answer will attempt to reconcile the two and give you a way to understand how they can both be correct.
What is missing from the question and both answers (so far) is one word: “Co-founders.”
You aren’t trying to “hire employees” and “pay them with equity.” You are trying to found a company and you need co-founders!
Co-founders get “paid” with equity. Employees, on the other hand, (in early stage startups) get paid mostly with cash and a much, much smaller amount of equity than the co-founders. This equity the early employees receive is to compensate them for the risks inherent in working for a startup. Which is much lower than the risk the co-founders take.
Employees usually come on board after you raise the necessary capital to pay them. The capital comes from investors who receive equity in exchange for the capital.
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