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Why a Services-For-Equity approach can be a good business model

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Steve JbaraPresident of Grand Rapids Gold, is a driven and innovative entrepreneur.

Ideally, everyone wins when a company enters into a service-for-equity agreement with a contractor. Those on both sides of the equation all agree. Their goals are aligned. The entrepreneur gets a valuable service, and if the supplier does their job, they too will reap the benefits in the long run.

Everyone is in step. Everyone benefits from “the human and emotional element of building something great together,” as Alain Sylvain, CEO and Founder of Sylvain Labs, wrote for Inc. Sylvain calls it “a great equalizer.” because “it changes the way companies value their time”. .” It emphasizes a “partnership” where both parties must succeed together instead of treating it as a “deal”.

Perhaps the most extreme example of how a service provider could benefit from such a partnership is that of David Choe. The Los Angeles-based Korean-American artist was enlisted in 2005 by then Facebook chairman Sean Parker to paint murals on the walls of the then fledgling company’s headquarters in Silicon Valley. Rather than take $60,000 in cash, Choe opted for stock options instead, though he would later say he considered Facebook “a joke” at the time. He would learn otherwise, as many of us would. And when the social media platform went public in 2012, its stock was worth $200 million.

Again, this is definitely the best case scenario. But as I learned as the CEO of a Detroit-based advertising agency, many companies can reap the benefits of a services-for-equity approach. My company invests a given amount of resources in a startup in exchange for an agreed percentage of their business, the idea being that if you do your job well, both parties will benefit.

Others are of the same mindset. Dan Hussain, founder and president of the United States Patent Agency, wrote in a 2019 article for Forbes that he had invested “just over $1,000” in his company when it launched in 2006. Thirteen years later, his portfolio exceeded one million dollars. He added that he finds it particularly inspiring when he encounters a startup that looks promising for the future (as opposed to one that is stagnating in the present), and conceded that while there will likely be some growing pains initials, “exponential success” is a very real possibility.

Best Practices for a Services-for-Equity Business Model

In an article for Score.org, investor and author Hal Shelton pointed out that vendors should do their due diligence by reviewing the brand’s records to determine its current financial status and evaluating its business plan and Financial forecast. To that end, I have always found a capitalization chart to be invaluable in this form of business arrangement, as it provides insight into ownership percentages between investors and entrepreneur in start-up businesses. It is also a useful tool for establishing appropriate assessments.

It’s also important to keep in mind that most startups using equity services are typically cash-strapped, so receiving all the necessary information in a company’s financial forecast to ensure profitability is crucial. since this model is designed for overview.

Furthermore, it is essential to gain a complete understanding of the management structure and decision-making process of the brand so that the service provider can be assured that their interests will be protected. The only real decisions you can make in this type of model are about marketing, so if the organization you’re trading services with for equity doesn’t have strong leadership, it’s usually best to avoid such an investment. .

Another caveat: having your own team online and providing services (i.e. holding your end of the bargain) is also important, as showing contribution to the bigger picture is key to not lose any future profit.

The thing is, it’s a two-way relationship. There is an exchange between the brand and the service provider. Both parties need to understand this and enter the partnership with eyes wide open. If both do their homework, chances are good that it can be a productive relationship, and that over time both can reap the benefits.


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