Entrepreneur
Article
By Andrew Neitlich

Part II: Equity vs. Cash

By Andrew Neitlich

http://www.sitepoint.com/blog-post-view.php?id=222721

Three addendums to above blog:

1. One reader asks whether to work for free on startups as a loan (cash paid later with interest), if the startup can pay. I’d suggest that you don’t work unless you know you are going to get paid — unless other factors are at work, like you want a chance to get a referral from a cool client, you want to do a really interesting project and increase your skills, etc. This is a basic part of qualifying prospects. Perrsonally, I never accept work unless I know I’ll get paid.

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2. Options sound exciting, but are meaningless until you exercise them. You get no dividends or other shareholder benefits until you convert them to real shares of stock. Meanwhile, stock is very real and comes with dividends (a share of any cash/income distributed to shareholders). So don’t get too excited about options until they are “in the money” — that is, worth more than their exercise price — and until you have actually exercised them to get liquid or to become a real stockholder.

3. Think of taking stock/options as a lottery ticket. It is unlikely that one will pay off, but a portfolio of a few equity deals could indeed pay (if you choose them wisely). That’s why I want you to learn about this form of payment — so that you can evaluate companies and equity deals and know when you have an attractive opportunity for equity before you.

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