Ask HN: Giving away 2% equity during bootstrapping for free housing?
I'm in the process of bootstrapping a startup with no funding (I'm at the very beginning). My friend has a rather large community house where he has offered me to stay for free for 2% equity (or something like that) per year but I could negotiate the deal. I'm very good friends with him.
Living there is cheap. Rent would be around 230 Euros per month (incl. utilities).
Is that something that I could consider? Why shouldn't I? Will it scare away future investors?
Published in 2015, this chronicle by @susi22 details the mechanics of building a profitable, self-funded business without venture backing.
The community focused on B2B customer acquisition channels, cold email vs SEO distribution, and balancing full-time employment with side-project development.
This term means that your pre-seed-stage startup has a valuation of 138 000€. If the real number is lower than that, you should take the deal provided there are no further strings attached (voting rights, etc.).
If the real number is higher than that, then you should just stay elsewhere.
Every investor is different but I would be more likely to invest in a startup where the founder parted with some small amount of equity to conserve cash.
You can structure the deal as a cash investment where you then turn around and pay the cash as rent; later investors don't even need to know the reason for the investment. It sounds like a great way to build momentum (having an investor vs. no investors as yet).
The thing about giving equity is how do you walk away? Suppose in a year you want to quit that project, move, and work on something else. Is your friend going to try to claim part of your new company? Second, living with and starting a company with someone who is a friend is a good way to lose that friendship. If you just have no other option or cash then maybe it is a good deal for you, but at least try to negotiate and impose conditions like vesting or buyout clauses that meet your needs.
If you're trading equity to an outside entity in exchange for cash or it's equivalent, then it's not really bootstrapping. Or to put it another way, wouldn't cash to spend on the startup for more than just housing be better?
Your "friend" isn't offering you anything "free."
2% for about 2.7k is a pretty bad price. If you believe what you're doing has potential to become valuable, you should definitely not take that deal. If you don't, then why are you doing it?