Should You Take Equity Instead of Cash?

In August 2022 I joined a US travel startup called Travelfika as a part-time founding engineer, from a dorm room, for about ₹15,000 a month. Equity came up. Of course it did. I was employee-adjacent number three on a product being built in real time, and the conversation was warm, sincere, and completely genuine on both sides.

It was never formalised. No grant, no agreement, no cap table entry, no vesting schedule. Just a conversation between people who liked each other and assumed the paperwork would follow.

I don't regret the year. It was the best education I've had and it set up everything after. But the lesson is exact: a conversation about equity is not equity. It's a feeling with a number attached.

Start from the base rate

Most startups fail. That isn't cynicism, it's the arithmetic of the category, and every founder pitching you knows it about other people's companies.

So the honest framing: equity in a pre-seed company, with no term sheet and no institutional investor, is a lottery ticket you cannot sell, in a lottery whose draw date is seven to ten years away, run by people you met last month.

That's not an argument against ever taking it. Lottery tickets are fine if you buy them with money you're not counting on. It's an argument against pricing it as if it were cash, which is what the offer is quietly asking you to do.

The test I use: would I invest my own money in this company at this valuation? If not, I shouldn't invest my labour at it either, because labour is the only capital I have and it doesn't come back.

The questions that make an offer real

The moment equity is mentioned, the conversation should become boring and specific. If it can't, you have your answer.

What percentage, of what total, fully diluted? "2%" is meaningless without the denominator, and "fully diluted" matters because option pools and convertible notes exist. A share count with no total is not information.

At what valuation? This turns a percentage into a dollar figure you can compare against the cash you're giving up. If the last round priced the company at $4M and you take a $20,000 discount for 0.5%, you just bought $20,000 of stock for $20,000 and got no discount for the risk.

Vesting and cliff? Standard is four years with a one-year cliff. If you're a contractor on a six-month project, a one-year cliff means you receive nothing, and you should say so out loud.

Written agreement or founder's promise? Ask to see the document. A signed grant, a SAFE, a warrant, something with a date on it. This is the Travelfika question, and the one I failed to ask.

What sits ahead of you in a liquidation? Investors typically hold preferred stock with a liquidation preference. In a modest exit, preferences can consume the entire sale price before common shareholders see anything. A $30M acquisition can pay employees zero. This happens constantly.

What happens if you stop? Post-termination exercise windows are often 90 days. If your options are worth exercising, you may need real cash on short notice to buy shares you still can't sell.

The three problems nobody mentions in the pitch

Tax. Depending on jurisdiction and instrument, you can owe tax at exercise, on paper gains, on an asset you cannot sell to pay the bill. People have been ruined by this. Get advice before you sign, not before you exercise.

Illiquidity. Seven to ten years is the realistic horizon, and that's for the winners. Secondary sales exist but are usually gated by the company. Equity isn't a savings account with a lock on it, it's a claim that may never convert.

Cross-border complexity. As an Indian contractor holding equity in a US entity, you're looking at foreign asset reporting, remittance rules, withholding questions, and a tax adviser who charges by the hour to explain them. A small grant can cost more in compliance than it will ever be worth.

The structures that are actually survivable

If you're going to do it, do it in one of these shapes:

Cash at market rate plus a smaller equity slice. My default. You get paid properly, the equity is genuine upside rather than a discount, and both sides stay honest about what the work is worth. If a founder can't pay market and wants equity to bridge the gap, that's a fundraising problem being outsourced to you.

A discounted rate with a written multiple. You take, say, 60% of your rate now, and the contract states the deferred 40% converts at 2× if the company raises above a defined threshold or is acquired. It's written, it's bounded, and it has a trigger someone can point at. Deferral with an actual document behind it is a different animal from goodwill.

Never 100% equity. Not for a stranger, not for a friend, not for an idea you love. Working entirely for equity means you're a founder with none of the control and all of the exposure. If they want a co-founder, they should offer a co-founder's stake and a co-founder's seat.

When it genuinely is worth it

I don't want to talk anyone out of a good bet, and good bets exist. The conditions I'd need, all of them at once:

It's a company I'd want to join anyway, on the product alone. There's real traction I can verify, revenue or usage, not a deck. The role is founder-adjacent, meaning I'm shaping the product rather than executing tickets. The agreement is written, signed, and dated. And I can afford to lose every hour I put in without it changing my year.

That's a narrow gate. It should be. It's also roughly the situation I was in at Travelfika, minus the one item that mattered, which is why I ended that year with a formative experience, a solid reference, and precisely zero shares.

Where I land

Equity is a bet, and the person offering it is the person with the most information and the most optimism in the room. That asymmetry doesn't make them dishonest, it just means the enthusiasm in their voice is not data.

So use the simple test and don't flinch from it. If you wouldn't hand this company cash at this valuation, don't hand it your labour at that valuation either. Labour is the more expensive of the two, because you can always earn more money and you cannot earn more 2026.