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A Unique Equity Funding Strategy – Exchanging Equity for Services

July 20, 2010 by Frank Goley, Business Consultant

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Nowadays companies have to look at unique funding arrangements as business finance is tight and markets fickle. Have you thought about bringing on an equity partner not for the cash they can provide but the expertise and services they can provide? Sometimes a company needs a certain service more than it needs cash, particularly if it is from a company that is highly sought after for their area of expertise. When things are tight and options limited, you may want to expand your funding search for service providers who could be integral to your company success and present them with an equity position verses paying cash for their services.

In some sense this appears as barter, but it is really an equity deal as the service provider receives an equity position for the service they provide. For this to work, there needs to be incentives built in so the service provider has a real stake in the success of their services, and the receiving company can rest assured they will be a priority to the service company. What a better way for a start up to secure high end services with out having to outlay precious and limited cash.

Valuations can be tricky in determining the equity trade for services but it is doable. Understanding the value of the company from a comparable sale and operational revenue, along with what the services will cost from the service provider, can get you in the ballpark.

Marketing and Advertising can be the mainstay of a company’s success so trading equity for these type of expert providers can be very worthwhile. Make sure you have incentives built into the equity share agreement so the service provider / equity partner has plenty of reason to work hard on your account. For instance, if they meet certain level of sales or increase in sales due to their services, then the equity stake can grow to a predetermined cap. It can be a real win-win for both companies in this uncertain economic time. Consider a relook at your Business Plan to see if trading equity for valuable services makes sense for your business.  

Video Resource: The Angel Funding Market

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