Equity, Designers, and Startups

In a recent post, I discussed some of the reasons a freelance designer might hesitate to take on a startup client. A primary reason designers may balk at working with a startup is compensation; specifically, not receiving it. One potential solution is to ask the startup for equity, but that brings its own list of concerns. For instance, consider this question from a freelancing UI/UX Designer that climbed aboard the startup train for the first time:

I’m serving as UI/UX and Front End Dev for a pre-money startup. They have 3 founders and one other employee, all technical and competent. I played a significant role in distilling their ideas into solid workflows, prototypes, and a defined scope for MVP. I will build the front end for the MVP. We have a good relationship and they want me to stay on board. I intend to get them at least to MVP, likely further. How do I contextualize my value?

My first thought: Congrats! It seems like you have found a startup worth working for. You must like the idea and the people if you plan on getting them across the MVP finish line.

My second thought: Isn’t “pre-money” is such a lovely word for “no-money”?

I have worked at multiple start-ups in the past doing work similar to what this designer describes: taking the idea out of the founders’ heads and forcing them to articulate it as storyboards, user flows, and prototypes. It takes a lot of work to distill a “big idea” into a functioning MVP. So you should be rewarded accordingly – whether they are “pre-money” or not.

When I get an opportunity to work with a startup that I really think has a compelling product idea and has hard working, good people at the helm, then I want to find a way to work with them no matter what.  In practice, this usually means that I accept some combination of equity and cash as compensation. And there is definitely a relationship between the two: the less cash they pay the more equity I ask for.

(Side note: At Startups where I don’t think the idea has merit then I’ll make it a strictly cash transaction at a competitive freelance rate. You should only ever take equity as compensation if you think the gamble might actually play out.)

Also, if I am getting involved with this startup in the very early days of the company (aka. “pre-money”), then I ask for a significant amount of equity. Anywhere from 1 to 8% of the company. This is for two reasons:

  1. The risk/reward factor. The earlier it is in the startup’s life, the riskier it is to work with them. And the riskier the proposition is, the higher the potential reward should be.
  2. Without my design work, there would be no product. I am playing an absolutely crucial role in turning the idea into reality, so I should be rewarded accordingly.

Lastly, make sure you get it in writing. They can award you stock grants directly or “phantom stock units” if they haven’t had any formal company valuations yet. Either way, you want it drawn up by a lawyer and signed by all parties.

And enjoy yourself. The fact that this startup wants to work with a UX designer at such an early stage means that they know UX is critical to their success. Sounds like a great place to work.

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