When Cash Isn’t the Whole Story: Equity and Alternative Comp in Fractional Work (2)
A different founder, in a different conversation, asked me a different question. He did not have equity to offer — the cap table was complicated and recent, and he was not going to open it again for a six-month engagement. What he had was a quarter ahead of him that turned on a single, named outcome: launching a new product line into a new region, with a revenue target, by a date already on the board. Would I tie a portion of our fee to whether we hit that target?
I thought about it for a week. I had been burned before by performance-based deals that looked clean in the contract and proved unworkable in execution: The metric had been too far downstream for me to influence. The base had been negotiated too low to make us whole in case of a miss. The definition of “hit” had been one paragraph too short.
This founder’s offer was different — narrow scope, defined metric, a base I could live on, a bonus that paid only if the company genuinely benefited. We did the deal. We hit the number, barely, by the third week of the quarter, and the bonus arrived with the next invoice. It remains the cleanest performance arrangement I have done.
The first part of this series argued that equity is a structured negotiation, not a favor. The same is true, more so, of the alternatives. Each looks simpler than equity and is, in practice, just as easy to get wrong.
A few things I have come to believe about the alternatives:
• Performance-based fees belong on a metric you can actually move: pipeline you build, deals you close, retention in a defined cohort. They erode the moment the metric is also someone else’s, or something the macro economy can take away in a quarter.
• Advisory shares are not a smaller equity grant. They are a separate instrument with a separate purpose — paid for ongoing access, not for delivered work — and they need their own scope, end date, and exit clause when the advisory relationship ends.
• Profit-sharing on incremental gross margin works in companies with clean accounting and breaks in companies without it. Define “incremental” before you sign. Agree on who audits the number. Think about a cap.
• Revenue-share arrangements look like a partnership and behave like a marriage. They are nearly impossible to unwind cleanly. Treat them as a last resort, not a creative middle ground.
• Deferred fees — discounting now in exchange for a fuller payment later — are equity in disguise without the upside. Price them like equity, with the same skepticism.
None of these belong in a verbal agreement. All of them belong in a paragraph short enough that the CEO can read it in one sitting.
When the next founder cannot pay your full rate, which of the five are you prepared to actually structure, in writing, by Friday?
Here is the link to the first part of the story.
