Why We Don't Take Equity (And What We Take Instead)

Not because we're moralizing the cap table. Because equity warps incentives on a 2 to 8 week flat-price engagement, and the warp shows up in the build quality and the relationship.

The math the founder is running

The pitch usually sounds like: "We're capped on cash. If you take 1% equity for the $20K build, we both win: you get upside, we conserve runway."

The math behind it:

• 1% of a $20M outcome = $200K. 10x return on the build cost.
• 1% of a $200M outcome = $2M. 100x return.

Real math, ignores three things that decide it for us.

Probability-weighted return

Most products don't get to $20M, let alone $200M. If we did equity-only on every project, our average return per engagement would be a fraction of cash, and we have payroll. Convex bets work for VCs because they get to do 30 of them per fund. We can do 2 a month at most.

Illiquidity discount

Even on the rare winners, the cash equivalent comes 5 to 8 years later, often through a secondary at a discount. The NPV of an option that pays in 2032 is much lower than the headline number.

The reason that actually decides it

Equity warps the engagement.

A flat-price engagement is honest because both parties want the same thing: work done as fast and well as possible, then we move on. Price is the price. Scope creep hurts us. Scope discipline helps both of us.

Add equity:

• We have a reason to over-engineer for the future (the equity stake assumes you'll succeed) when the right call is to ship the validation version
• You have a reason to extract more scope from us (we have skin in the game now), which destroys our economics
• Disagreements about the build become emotional in a way they aren't on a vendor relationship
• The relationship becomes harder to exit cleanly

We've watched other shops take equity. The ones who did it well had it as a tiny percentage on top of full cash. The ones who did it badly took equity-only or equity-heavy and either burned out the founder relationship or shipped over-engineered builds.

What we take instead

Two patterns work:

The retainer extension. Quote v1 at our normal flat price. Add an optional 3-month retainer at 20% off our usual monthly rate. Non-binding, so the founder can cancel any month after we've handed off v1. Founder gets a runway-friendly path for ongoing work. We get a more predictable next 90 days. Clean incentives both sides.

The deferred portion. For founders with a clear funding event in the next 60 days (term sheet in hand, not "we're raising"), we'll defer 30% of the price to be paid on close. Simple invoice with a payment date. Functionally a short-term loan, treated as one. Two missed dates means we stop work and the deferred amount becomes immediately payable.

We've done this maybe 10 times. Two needed a payment-plan rework when the close slipped. No bad debt yet.

What we'll never do

Equity in lieu of cash. No matter the cap table. Incentives are wrong for our shape of work.

Pure rev-share. Same issue: incentives end up aligned to features that drive short-term revenue at the cost of the right product call.

Convertible note in lieu of cash. Same problem as equity, with more legal paperwork.

Mixed equity + discount. Even a tiny percentage. Pay us full cash or don't engage. Cleaner relationship.

Why this is a feature, not a bug

The cash-only flat-price model is what makes the rest of our pitch credible:

• We can quote against scope honestly: not optimizing for an equity outcome
• We can recommend you stop building or hire someone full-time when that's the right call (cutting our own future revenue) because we don't have an equity position to protect
• We can hand off cleanly to your full-time hires: no ongoing entanglement
• Other founders we work with don't have to wonder if we're saying nice things about their product because of cap-table position

We get a smaller addressable market. We lose the founders who only do equity. We keep cleaner relationships with everyone else, and the lifetime value of those relationships is substantially higher.

When you actually want equity

If you're convinced you want an equity-aligned partner, hire a fractional CTO who's structurally suited for it. Real fractional CTO arrangements (2 to 5% over a 24-month vest, real say in technical direction, commitment to the company's path) work for the right kind of person.

We're not that person on a 2 to 8 week engagement. We're a build shop. Build shops get paid in cash for builds.

What's next

MVP cost in 2026: the price sheet.

The $5K MVP playbook: what fits at the cheapest tier.

Hire vs Engage 2026: when engaging is the right call.