An agency that offers to build your MVP for equity is not offering you free software. It is offering to become a shareholder in exchange for work, and you will pay for that work with ownership instead of cash. Sometimes that trade makes sense. More often it costs a founder more than the invoice would have, because the equity is priced before anyone knows what the product is worth or whether the agency will still be around in a year.
I get asked about this a few times a quarter, usually by a non-technical founder who has a quote for $80,000 to $150,000, no round yet, and an agency that has just said "we believe in this, we will take part of it in shares." Here is how I think it through.
What you are actually being offered
Strip the pitch away and there are three common shapes.
All equity. The agency builds for shares only. This is rare from established shops and common from small studios looking for a portfolio. It sounds the most generous and is usually the most expensive.
Cash plus equity. The agency discounts its rate, often by 30 to 50 percent, and takes shares for the gap. This is the most common structure, because the agency still covers its payroll and you still conserve some cash.
Cash now, convert later. The agency defers part of its invoice and the deferred amount converts into equity at your next priced round, sometimes at a discount, much like a SAFE or a convertible note. This is the structure I find easiest to defend, because the price of the shares is set later by a real investor instead of today by guesswork.
The question in every case is the same: what price are you implicitly putting on your company, and what are you getting for it beyond code?
Why it often costs more than cash
Say the agency wants 15 percent for a build it would otherwise bill at $100,000. You have just valued your whole company at roughly $667,000 before it has a product. If you later raise a seed round at a $10 million post-money valuation, that 15 percent, diluted by the round, is still worth well over a million dollars on paper. You paid seven figures of ownership for a six-figure build.
That is the core problem. Equity is cheapest to give when your company is worth the least, which is exactly why it is the most expensive thing to give away for a fixed-scope service.
There are other costs that do not show up on the term sheet.
- Your cap table gets a non-founder, non-investor holder early. Seed investors look at who owns what. A dev shop holding 10 to 20 percent before the seed round raises questions about who really controls the product and whether the founders have enough ownership left to stay motivated.
- The incentive cuts both ways. Equity is meant to align the agency with your success. In practice a shop with forty clients cannot care about your company the way a founder does. The shares make them patient about payment, not obsessed with your users.
- The relationship gets harder to end. If the build goes badly, you cannot fire a shareholder. You can stop giving them work, but they still own part of your company, and you still need their cooperation for a clean handoff of code, accounts, and credentials.
- Vesting is often missing. Founders vest their shares over time. Agencies sometimes ask for their equity on signing. If the work stalls in month three, they keep it all.
When it can make sense
I do not tell founders never to do this. A few situations change the math.
- The agency brings something you cannot buy. Real domain experience, a distribution channel, or a partner who will act like a technical co-founder and stay for years. At that point you are not paying a vendor in shares, you are bringing on a partner, and you should evaluate them like one.
- The equity converts at a real price. If the deferred amount converts at your next round's valuation, you are not guessing at your company's value today. You are delaying the cash and paying a modest premium for that delay.
- The stake is small and it vests against delivery. A low single-digit percentage that vests as defined milestones are accepted is a very different deal from a large block granted on signature.
- You have exhausted cheaper options. If the alternative is not building at all, a fair equity deal can be better than nothing. Just know what the alternative costs first. A smaller first build, a freelancer instead of an agency, or a few months of senior guidance to cut scope often closes most of the gap. I wrote about that tradeoff in freelancer or agency for your MVP.
How to structure it if you go ahead
If you decide the trade is worth it, protect yourself the way an investor would.
Price it with a real valuation or defer the price
Prefer a structure where the agency's equity converts at your next priced round, with a cap and discount you can live with. If you must issue shares now, get an honest view of what the company is worth and write the implied valuation down so everyone sees it.
Vest against accepted milestones
Tie the equity to delivery, not to the calendar alone. Each tranche vests when a defined milestone passes acceptance testing that you control. Define "done" in writing before you sign; your agency says it is done, done by whose definition covers how.
Own everything from day one
The repository, the cloud account, the app store accounts, and the domain should be in your name from the first commit, and the IP should assign to your company as it is created, not on final payment. Equity does not change this. It makes it more important, because you will have less leverage later. See who owns your code.
Get a lawyer and a tax adviser
Equity for services has tax and securities consequences on both sides, and the details differ by country and entity type. This is not optional paperwork. A few hours of legal review is cheap compared with unwinding a bad grant before a round.
Plan for life after the agency
The agency that builds version one is unlikely to be the team that runs the product for five years. Agree in writing what happens when the engagement ends: handoff documentation, a transition period, and what support costs after launch.
A quick way to sanity-check the offer
Before you sign, write three numbers on one page: the cash price of the build, the percentage they want, and the implied valuation that percentage puts on your company today. Then estimate what that percentage would be worth after a seed round you think is realistic. If the gap between the cash price and that future value makes you uncomfortable, trust the discomfort.
If you want a second pair of eyes on the proposal itself, our teardown is built for exactly this kind of document, and our pricing shows what a few months of senior judgment costs compared with a block of equity.
FAQ
What percentage do agencies usually ask for?
There is no reliable benchmark. I have seen offers from 2 percent to more than 20 percent. The number matters less than the implied valuation and whether it vests against delivery.
Is it better than giving equity to a technical co-founder?
They are different deals. A co-founder works on your company full time for years and carries the same risk you do. An agency delivers a scope and moves on. If you are giving co-founder-sized equity, you should be getting co-founder-sized commitment.
Will investors object to an agency on the cap table?
Not automatically. A small, vested, well-documented stake is usually fine. A large block granted up front, or a stake that gives the agency control rights, is the kind of thing that slows a round down.
Can I buy the shares back later?
Only if you negotiated a buyback right up front. Without one, the agency can simply say no. Put a repurchase option in the agreement if you want that flexibility.