Last week Ben Schiller wrote about a new app (because of course it’s an app) that wants to facilitate a different sort of connection between freelancers and those who are looking for help and support. Loom allows startup founders to make a pitch to freelancers that offers equity shares instead of pay along with a small cash budget up front. That budget is not just for the worker themselves but is also meant to cover goods and materials that may be needed at the start of the project.

It’s not a bad idea and offers at least something for the effort put in by the freelancer. That being said, it’s also not too far removed from something freelancers are almost always advised against doing, and that’s work for free.

Let me elaborate on that.

It’s pretty common that freelancers in a variety of fields are asked to work for free. Someone reaches out to you saying they’d like to have you write for a project or photograph an event or something else. When the conversation turns to compensation, you’re soon told there’s no money available, but the party looking to hire you can offer “exposure” in a pamphlet, on the website or whatever.

You then have a decision to make: Is the opportunity good enough that the resulting exposure (it’s almost never as vast as is promised) is worth the time you’ll spend on the project. After all, for most all freelancers time is money. So the time you spend on Free Project is time you’re not able to spend on Paid Project. Nor is it time you can spend on Pitching More Paid Projects or Taking A Nap Despite The Anxiety.

In some – rare – cases, the answer is “yes,” it’s worth it, either because it could actually lead to more paid work or because it’s not going to significantly interfere with other projects and priorities. Other times it’s a clear “no” because the potential for those upsides isn’t as clear.

Last year I spent about eight months working for a Chicago-area startup that was in what we’ll call the “pre-funding” stage. Without a lot of money at hand, I was offered an equity stake in the company. This wasn’t exactly a “work for free” situation, but it was certainly one where the payoff, whatever it was, would be deferred and not something I would see anytime soon.

What I found, both before saying “yes” and over the course of the next several months, is that working for equity involves doing some advanced calculus involving weighing and balancing the following considerations:

  • How likely is it that equity will actually be valuable? You’re basically placing a long-term bet that the company looking to work with you will be part of the 40% that return at least 1x value to investors, either through their own earnings or via acquisition. You can either go with your gut or you can do extensive market research, but you’re still making a call.
  • How will that impact your new business hustle? According to a Payoneer study last year the amount of time a freelancer spends trolling for new work depends greatly on what industry they’re in. But the reality is that you probably spend quite a bit of time on a regular basis sending pitches, responding to RFPs, networking online or in-person or maintaining a portfolio.
  • How will that impact your current workload? How many clients you have is going to vary depending on the duration of each project, the size of those projects and how much of your bandwidth you’re *able* to allow to working. So just as with any other potential gig, you’re going to have to make sure you have the time to not only do it but do it well and maintain the commitment to current clients who are actually paying you.
  • Would the experience be valuable in other ways? This is slightly different than the “work for the exposure” question. Basically, would the opportunity you’re being offered give you experience that would be valuable to add to your skillset and make you more attractive to the next potential client? Beyond the equity, you’re being offered (which may or may not actually materialize), the experience and skills could help you increase your rates or apply for gigs once out of reach.
  • Can you afford it? Assuming you have the time and you feel like the deferred payoff could make seizing the opportunity worth it, you have to consider whether your budget can handle not being paid for the otherwise monetizable time. Again, every minute you spend on a project in the hope of an equity-based payout is one you’re not spending on something you can tangibly invoice at the end of the month.
  • How hard are you willing and able to work? When you agree to equity as compensation you’re putting yourself in roughly the same situation as the founder. The size of your payoff at some undetermined date is directly correlated to how much effort you put in today. If things turn out well then all that was worth it. If it doesn’t, you may kick yourself for either not trying harder or for spending so much time on a losing proposition.

There’s nothing inherently bad about taking work in exchange for an equity stake. You just need to be aware of what the benefits and tradeoffs of doing so are and make sure the former outweighs the latter in your specific instance. Your answer may be different from someone else’s. In fact it’s almost guaranteed to be.

Chris Thilk is a freelance writer and content strategist who lives in the Chicago suburbs.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s