Top Professional Services to Hire for Sweat Equity

There's a growing trend of venture-backed companies, particularly driven in 2023 by a slow fundraising market, to hire their key professional service firms to be compensated in equity, or at least a mix of cash and equity instead of standard cash fees.

We sum up the top services engaged for equity, and their common modes of engagement. Thinking through how equity can be used as a tool to extend the runway from the proceeds of a typical round is an important exercise to determine your true runway, and take advantages of the many benefits of compensating key talent with equity to align incentives.

Law Firms

Law firms are one of the most common professional services engaged through sweat equity. Legal services are integral to the operations of any startup, from incorporation to intellectual property protection to fundraising. Engaging a law firm through sweat equity can ensure that your legal partner is invested in the success of your venture. This not only provides a cost-effective solution for startups but also aligns the law firm's interests with the company's, leading to a more collaborative and beneficial relationship.

Law firms, protected by professional licensure, often enjoy healthy margins, allowing them to take some of the biggest venture swings and offer startup programs that may require no up-front cash. Since this also makes legal the most expensive professional service, this is a win-win for both sides. Read our full guide to evaluating sweat equity law firms here.

Recruiting Firms

Recruiting is a critical function for any growing startup. A recruiting firm can help a startup find the right talent to drive its vision forward. By compensating a recruiting firm with sweat equity, startups can ensure that the firm is incentivized to find the best possible candidates. This arrangement also allows startups to conserve cash while still accessing top-tier recruiting services.

Recruiting sweat equity structures mirror cash arrangements, in that recruiters are compensated only for placement, sometimes even based on the performance of their placements. But cash placement commissions can be exorbitant and increase the cost of the hire 20%, making this a key opportunity to use a mix of cash and equity and avoid the tradeoff of using a recruiting team to make better hires faster, and hiring 20% more workforce.

Engineering and Dev Teams

Engineering and development teams are the backbone of any tech startup. They are responsible for turning the startup's vision into a tangible product. Engaging an engineering or dev team through sweat equity can be a strategic move. It not only allows startups to attract and retain top talent without a significant upfront cash outlay, but it also ensures that the team is invested in the product and the company's success.

Dev teams often work on a 50/50 basis, or accept a meaningful amount of payment in equity after some cash deposit. This is a huge opportunity to ensure incentives are aligned, as the folks making the product itself have massive influence over its success. Look for a partner that won’t just make software nobody uses.

Browse Providers on Lynx

Lynx is a platform that connects startups with service providers willing to work for equity. By browsing providers on Lynx, startups can find a wide range of services, from legal and recruiting to engineering and development, all open to sweat equity arrangements. This can significantly extend a startup's runway and align the interests of all parties involved, leading to a higher likelihood of success. Make an account today to browse providers.