Kevin Simpson warns against giving away equity to partners, even helpful ones, because it can become your most valuable asset. Instead, tie their pay to actual results: revenue percentage, performance fees, or success-linked arrangements. You keep ownership, they still win.
Small business owners say, I have an idea, but if I can get this partner in, just contribute a little bit, that could make all the difference. I'll give away stuff. So you'd be very careful of that. What I encourage entrepreneurs to do is never, ever, ever give away equity. Never give away equity, 'cause we think the equity is worth less, and in the future it can be the most valuable thing you have. So negotiate other terms. I wanna bring on someone that's very influential or helpful that could help the company, but I can't afford to hire them. My default thought used to be, well, here's 10% of the business for 20%, you know, upside. Yeah. But now, regardless of their participation, if it fails, they own 10 to 20% of the business. So now I approach them and say, what can we do to compensate you on your success? You know, maybe you take a percentage of the revenue you generate or the way you participate, but you're not going to get equity. And that, that's been way better for me and actually for them too, because they still win if they contribute, but it protects me.
