Equity Deals With Clients: When to Take Stock Instead of Cash

Every agency founder gets the email eventually. A pre-seed founder loves your portfolio, has $30k in the bank, and wants you to build the MVP for a mix of cash and equity. The deck is good. The market is real. The temptation is to say yes too fast, or no too fast — and both are expensive mistakes.

This is the framework we use at 72Technologies to decide whether to take client equity, how to structure it when we do, and the failure modes we've watched other shops walk straight into.

Why equity deals are usually a bad idea

Let's start with the uncomfortable part. Most equity-for-services deals are bad for the agency. Not because startups fail — though they do — but because the structure of the deal works against you even when the company wins.

A few reasons:

• You're underwriting risk you can't price. A VC diligences a deal for weeks with sector analysts and reference calls. You diligenced it over a Zoom call and a Notion deck.
• Your equity gets diluted while your effort doesn't. You ship the MVP, take a 2% stake, and then watch it become 0.8% after two priced rounds.
• Liquidity is 7+ years away, if ever. Your team needs to make payroll in 30 days.
• You'll be tempted to over-service. Because you're a shareholder now, scope creep becomes self-inflicted.

If you take equity on every deal that asks, you'll go out of business holding a portfolio of paper that may or may not be worth something a decade from now.

That said — and this is the part the cynical takes miss — there are specific situations where equity is the right call, and we've made meaningful money from a small number of them.

The five-question filter

Before we even discuss terms, the deal has to clear five questions. If any answer is no, we politely decline the equity component and quote a normal cash engagement.

1. Would we invest cash in this company at this valuation?

This is the test that kills 80% of incoming equity pitches. If you wouldn't write a $50k angel check at the valuation implied by the deal, you shouldn't accept equity at that valuation either. Services aren't a discount currency.

Work the math backwards. If the founder offers 3% for $90k of work at a $3M post-money valuation, ask yourself: would I personally write a $90k check for 3% of this thing? Usually the answer is no, and the deal dies there.

2. Is there a real founder we'd back on personality alone?

We only take equity when we'd happily work with the founder again on their next company even if this one fails. Distressed founders, dishonest founders, or founders who treat the agency like a vendor will make your life miserable as a co-owner.

3. Does the company have at least some cash?

We don't do pure-equity deals anymore. The minimum is roughly 50% of our normal rate in cash. This filters out tourists and forces the founder to have raised something, even from friends and family. It also keeps our team paid.

4. Is the scope finite and well-defined?

Equity deals fall apart when scope is open-ended. "Build the platform" is not a scope. "Build the v1 web app with these 12 user stories, in 10 weeks" is. If the founder can't articulate a finite outcome, the equity will compensate you for infinite work.

5. Is there a credible path to liquidity inside 5 years?

Not a guaranteed path — a credible one. Strategic acquirers in the space, comparable exits, a founder who has done it before. If the realistic outcome is a 15-year lifestyle business, equity is the wrong instrument.

Deal structures that actually work

Assuming a deal clears the filter, the structure matters as much as the percentage. Here are the three we'll consider, in order of preference.

Cash + warrants

Our favourite. The client pays a discounted cash rate (say 60–70% of standard) and issues warrants for additional equity that vest on delivery milestones. Warrants are cleaner than common stock because they're a right to buy, not an outright grant — which simplifies tax treatment in most jurisdictions and gives you optionality.

A simplified structure:

Project value (standard rate):  $150,000
Cash portion (65%):             $ 97,500
Warrant coverage:               1.5% fully-diluted, post-money
Strike price:                   nominal ($0.0001/share)
Vesting:                        50% on MVP delivery, 50% on 90-day acceptance
Expiration:                     10 years
Anti-dilution:                  none (you eat the dilution)

The warrant gives you upside if the company wins, the cash keeps you solvent, and the milestone vesting keeps the founder accountable on acceptance — they have to actually sign off, not ghost you.

SAFE-for-services

A newer structure we've used twice. Instead of common stock, the client issues a SAFE to your agency in lieu of part of the invoice. The SAFE converts at the next priced round on the same terms as cash investors — usually with a discount or cap.

This is excellent when the company is genuinely about to raise. You get institutional-grade terms without negotiating them yourself, because the next round's lead will define them. The risk: if they never raise a priced round, the SAFE sits there forever.

Revenue share with equity kicker

For commerce or SaaS clients where revenue is the real signal, we sometimes take a small revenue share (1–3% for 24–36 months, capped at 2–3x the deferred fee) plus a token equity stake. This pays out faster than an exit and aligns you with the metric that matters.

Downside: it requires trust in the client's accounting, and you'll spend time chasing reports. Only do this with clients who have clean books and a real finance function or a competent founder who uses Stripe/Shopify reporting you can verify.

What we put in the contract

A few clauses we've learned to insist on, usually the hard way:

• Information rights. Quarterly financials, cap table updates, and notice of any financing event. Without this, you're flying blind for years.
• Pre-emptive rights. The right (not obligation) to participate in future rounds pro-rata. Cheap to negotiate now, valuable later.
• Tag-along rights. If the founders sell their shares, you can sell yours on the same terms. Critical in a partial acquisition or secondary.
• Most-favoured-nation on future services. If they hire a competitor at lower rates, your remaining cash rate matches. Prevents you being undercut on your own client.
• Reversion on non-payment. If they default on the cash portion, the warrants accelerate and vest immediately, plus the deferred amount becomes a convertible note.

Get a startup lawyer to paper this — not your commercial contracts lawyer. The two specialties don't overlap as much as you'd think.

The portfolio mindset

Even with the filter, most equity deals will return zero. Treat the equity book like a seed fund: assume 70% go to zero, 20% return your time, and 10% do something interesting. One real exit pays for all the duds.

This only works if equity is a small fraction of your revenue mix. Our internal rule: no more than 15% of bookings in any quarter can be discounted-for-equity work, and no single equity deal can be more than 5% of quarterly revenue. Anything more and you're running a venture fund with a delivery team attached, which is a much harder business than you think.

Track the equity portfolio like a real asset. Cap table snapshots in a shared sheet, quarterly review, mark-to-market on the last priced round. If you don't measure it, you'll either forget you own it or wildly overestimate what it's worth.

Where we'd start

If you've never done an equity deal and you're tempted by one on the table right now, do three things this week. First, run it through the five-question filter honestly — write the answers down, don't just think them. Second, counter-propose cash + warrants instead of whatever common-stock structure the founder offered; nine times out of ten they'll agree because warrants are cheaper for them too. Third, get a startup lawyer to review for two hours, not a generalist.

And if the deal doesn't clear the filter, say no without guilt. A good cash engagement beats a great equity engagement on a company that won't make it. We talk through structures like this with founders weekly — if you want a second pair of eyes on a specific deal, our product engineering team has seen enough of them to spot the patterns quickly.