Pay a freelance developer in cash for any project with an end date, like a website or a first version. Offer equity only to someone who will stay for years and share the risk, such as a technical cofounder or an early employee, and always with vesting, usually four years with a one-year cliff.
Founders offer equity for an understandable reason: cash is short and the product has to be built. But a share of your company is the most expensive thing you own, and a freelance project is one of the shortest relationships you'll have. That mismatch is why these deals so often end badly for both sides. Below: why equity rarely fits a project, what it really costs, what cofounders, employees, and advisors usually get, and what to do instead if cash is tight.
Equity or cash: the short answer
Pay in cash when
It's a job with an end
- The work has an end: a website, a first version, a fix
- You can describe what done looks like
- They'll hand it over and move on to other clients
- You want to keep full ownership of your company
Offer equity when
They're joining for years
- They'll work on it for years, not weeks
- They share the risk: if it fails, they lose too
- They'll make decisions, not just deliver a scope
- You'd want them even if you could afford a salary
The cut
Equity is ownership, and ownership should go to the people who build the company over time, not to everyone who does work for it. Your lawyer, accountant, and designer are paid in cash for the same reason. A developer on a defined project belongs in that group.
Why equity for a freelance project rarely works
For you, the founder
You give permanent ownership for temporary work. Six weeks of building can end up owning a slice of a company you work on for ten years. Investors also look closely at who owns what: a former contractor holding a meaningful share, with no role in the company, raises questions in every fundraise. And if the relationship sours, you can't easily take the shares back.
For the developer
Most startups fail, so most startup equity ends up worth nothing. A freelancer paid in shares is betting their rent on your success, while having no say in it after the project ends. Experienced developers with steady clients usually decline equity-only offers, which means the offer tends to attract people with fewer options. That's the opposite of who you want building your first version. It also muddies the work itself. When a developer is paid in shares, it's harder to agree what's in scope, harder to say when the project is done, and awkward to hire someone else if it goes badly.
What paying a developer in equity really costs
A simple example with round numbers shows the problem. Say a first version would cost $20,000 in cash, and you offer 10% of the company instead. You've just valued your company at $200,000.
| If the company is later worth | That 10% is worth | Compared with $20,000 cash |
|---|---|---|
| $0 (it fails) | $0 | The developer lost $20,000 of work |
| $200,000 | $20,000 | About even |
| $2 million | $200,000 | You paid ten times the price |
| $10 million | $1 million | You paid fifty times the price |
In every row, someone loses. If the company fails, the developer worked for free. If it succeeds, you paid many times over for a project. Cash is the only version where both sides get exactly what they agreed. There's also a hidden cost: every share you give away now is a share you can't offer the people you'll need later, like your first key hires, or investors when you raise. Early shares are the scarcest thing a startup has, so spend them on the people who will still be there when the company is worth something. Typical cash prices for a first version are in what a web product costs.
How much equity developers and advisors usually get
If equity is right, these are the common arrangements. Exact numbers depend on stage, role, and negotiation, so treat them as a starting point for a conversation with your lawyer.
| Role | Typical equity | Typical vesting |
|---|---|---|
| Technical cofounder | A founder's share, agreed between the founders | 4 years, 1-year cliff |
| Early employee | A small percentage, often alongside a lower salary | 4 years, 1-year cliff |
| Advisor | 0.10–1.00%, depending on stage and time | 2 years, 3-month cliff |
| Freelancer on a project | None: paid in cash | Not applicable |
A "cliff" means nothing vests until that date. With a one-year cliff, someone who leaves after eight months keeps nothing, which protects you from giving shares to people who don't stay. The advisor range comes from the Founder Institute's widely used FAST template.
What to do if you can't pay a developer in cash yet
Tight cash is a real constraint, but equity isn't the only answer. These usually work better:
- Build less. Cut the first version to the one job customers will pay for. A smaller scope is the cheapest way to lower the price. See what to put in a first version.
- Test the idea before building it. A no-code tool or an AI-built demo can prove demand for very little money.
- Build in phases. Pay for the first phase, launch it, and let early revenue or a small raise pay for the next.
- Ask for a payment plan. Milestones spread over the project, which many freelancers accept, as covered in fixed price or hourly.
The Chat Companytook the second route. The founder and another developer generated a demo with AI tools, which was enough to show the idea. When it was time to serve real businesses, the founder paid cash for the proper build: $20,000 over nine weeks. The company kept its ownership, and the product now serves 30+ businesses. When you ask developers for quotes, say your budget openly and ask what they'd build for it. A good developer will suggest a smaller first phase rather than a share of your company, and you'll learn quickly who's thinking about your business and who's just pricing a feature list.
Cash plus equity: does a mix work?
A common middle ground is a reduced fee plus a small share. It sounds fair to both sides, and for a long-term hire it can be: early employees often take a lower salary in exchange for stock options that vest over four years. The mix works there because the person stays long enough to earn the shares and help make them valuable.
For a freelance project, the mix usually combines the downsides of both. You still give away permanent ownership, and the developer still takes a pay cut on work that ends in weeks. It also blurs the relationship: is this a supplier, or a part-owner who expects a say? If you want to reward a freelancer who did great work, a bonus on launch or a referral is cleaner. If you want them long-term, make them a real offer with a role, a salary, and vesting, and treat it as a hire rather than a discount on a project.
When equity is right: a technical cofounder
If what you actually need is a partner, someone who will build, decide, and stay through the hard years, then equity is the right currency. That's a technical cofounder, and it's a very different search from hiring a developer. Look for them among people you've already worked with, where trust exists before any shares change hands. And before signing anything, check these basics:
- Work together on something small before agreeing to shares
- Put the split and vesting in a written agreement from day one
- Agree what happens if either of you leaves
- Decide who makes which decisions, especially technical ones
If you find yourself offering equity mainly because a salary looks expensive, you're probably hiring, not partnering. A partner is someone you'd choose even if money were no object. If that's not how you feel about them, pay them well and part as friends. Then the better comparisons are a full-time developer or a freelancer and a fractional CTO or a freelancer.
Before you offer anyone equity
Run through these before you put a percentage in an email. If you can't answer most of them, pay cash for now. You can always offer equity later, once you know someone. You can't easily take it back.
Equity given in a hurry is hard to undo. Cash is simple: the work is done, the invoice is paid, and you still own your company. If cash is the issue, tell me your budgetand what you need, and I'll suggest the smallest first version worth building for that amount.
Sources
- 4 years with a 1-year cliff: the typical startup vesting schedule, Vela Wood
- FAST agreement: advisor equity of 0.10–1.00%, Founder Institute
