I enjoy reading the posts on craigslist, wherein naive entrepreneurs go looking for free software engineering talent. I know this sort of ad (no pay / equity only) bothers some people -- as though it somehow has real impact on the real jobs and pay in the industry -- but I think it's just fine. I mean, if you want a service for free, there's nothing wrong with asking. And if you are in the mood to work for free, it's nice to know where to find opportunities ...
Of course I am not referring to recruiters for genuine charity / volunteer work, where the goal is to provide services to a population that isn't served by the normal market mechanisms. Rather I'm talking about real for-profit, we're-gonna-be-the-1-in-100-successful-startup-and-make-a-boatload-of-cash kinda company.
The funny thing is that it's hard to imagine these wantrepreneurs looking for any other kind of professional services for free. Not because they feel coerced by social norms to offer money, but simply because they know better than to want what the "free professionals" have to offer.
I don't see these guys saying:
- I need heart surgery and I'm looking for a doctor who wants to keep their resume fresh. No compensation, but I'll thank you if I wake up.
- Going through a brutal divorce. Looking for a sharp lawyer to keep me from losing my shirt -- no pay, but I'll buy you a drink if we come out ok.
- Need a corporate lawyer and patent attorney. Equity only.
- Startup needs business travel on the cheap. Seeking a pilot and aircraft, not so concerned with FAA licenses or airworthiness.
- Building a new facility -- need architect, structural engineers, environmental compliance, project managers, and laborers. If we make a bunch of money, we'll pay you at some point in the future.
- Love my new car, but it needs engine work -- looking for a mechanic who'll work for free. Someone with little or no experience seeking to build up a resume is ideal.
Now, it is true that in the late 90s, during the dot-com bubble, landlords, attorneys and other did take equity. But they did so in addition to -- not instead of -- cash payment. And the odds of making bank on equity back then, while still long, were stunningly better than they are today.
I know what these guys are thinking. They're thinking "I just don't have a budget to pay for real development, and anything I can get for free is better than the nothing I can afford otherwise."
Well, in some cases, perhaps. But that's setting an awfully low bar. Likely too low to allow for a real chance of success. That is, the entrepreneur is theoretically pouring all his time, money, heart and soul into starting this business. But he's willing to gamble the whole thing on the questionable code he'll get out of someone who has nothing better to do to pad a resume while unemployed? Doesn't quite add up.
Or maybe he really wants a "partner" ... only it's unlikely this developer is going to see 50% equity. And anything less likely means the developer is along for the ride while the entrepreneur follows the same hare-brained decision process that led him to advertise the non-paid gig in the first place. In any case, the developer has no real clout when push comes to shove. He's a silent partner, just along for the ride.
True, there are a few brilliant technologists out there who simply don't need any (more) money. They have cashed out of a startup, or they run another business on the side that covers their expenses. And if you can hire one of these guys, then bully for you. But I think they are more likely to spend their time where they can make an impact on a real business, product, open-source project, or non-profit.
As for the entrepreneurs who get someone to bite ... they don't know what they're in for: a few months or more down the line, they have (perhaps) some kind of a half-baked system. They need the loyalty of that unpaid assistant to modify and improve the code, while the assistant has now seen through all the "about to receive funding" promises presented at the outset. And as the limitations of the half-baked system slowly become clear, the founder may wish to replace the developer, or throw the whole thing out and start over with a new iteration.
But unless the original developer was a real sucker, all that equity means unrecoverable dilution in the cap structure. The more equity involved and the earlier the start (meaning smaller valuation), the worse this situation turns out to be. It could even come to pass that a potential investor one day passes on the deal because of these problems in the cap structure.