Trading equity for software development is a misunderstood arrangement. Done well, it aligns a founder’s domain expertise with a team’s execution. Done poorly, it creates disputes and a product that never ships. The difference is when it makes sense, how much equity is reasonable, and what protections both sides need.
When equity-for-dev makes sense
It is not a hack to get free development; it is risk-sharing under specific conditions. The founder must bring what the dev team lacks - domain expertise, industry relationships, a path to the first 50 customers, or a unique dataset. The idea must have a credible path to revenue in 6 to 12 months, not five years. The founder must have some cash to cover real costs (salaries, infra). Both sides must want a long-term relationship.
When it does not
You have no traction and no distribution plan - equity in something nobody uses is worth zero. The project is small (EUR 5.000 to EUR 10.000) and legal costs of EUR 1.000 to EUR 3.000 erode the math. You are unwilling to share decisions. The market is unproven and demand is still a guess - run idea validation first.
Typical equity structures
| Structure | Founder pays | Team receives | Best for |
|---|---|---|---|
| Cash + equity | EUR 10.000 - 30.000 | 5-15 % (vesting) | Venture-track startups |
| Cash + revenue share | EUR 5.000 - 20.000 | 10-20 % net revenue, capped | Profitable businesses |
| Convertible note | Market-rate cash | Discount on next round | Pre-seed with investor interest |
Vesting is non-negotiable. Standard: 4-year schedule with a 1-year cliff. End in month 6 - no equity vests, both walk clean. After year 1, 25 % vests; the rest monthly across years 2-4.
Cap the revenue share. Common formula: X % of net revenue until total payments reach 2-3x the cash-equivalent value of the work. After the cap, the arrangement ends.
Cap table impact
5-10 % to a build partner leaves room for future investors, employees, and advisors - the sweet spot. 15-20 % is aggressive and may concern future investors who expect founders to hold 60-80 % at pre-seed. More than 20 % is co-founder territory - at that level, the team should be acting like co-founders. See technical co-founder vs development partner.
Mistakes that kill these deals
Founder side: offering equity to avoid any cash (bring at least 30-50 % of project cost); skipping a written shareholder agreement (EUR 1.500 to EUR 3.000 for a lawyer); vague milestones; ignoring tax implications.
Team side: taking equity without evaluating the founder’s ability to sell; failing to define scope limits; skipping cap-table due diligence.
Frequently Asked Questions
Is equity-for-dev common in Croatia? Growing but still less common than in the US or UK. Most Croatian agencies operate on fee-for-service. A handful, including us, selectively take equity arrangements for ideas we believe in.
How do I value the equity I am offering? At pre-revenue stage, value is typically derived from development cost. EUR 40.000 of work for 10 % equity implies a EUR 400.000 valuation. It is a negotiation - no formula auto-agrees both sides.
Can I offer equity to a freelancer? Possible, but freelancers rarely accept - they lack the financial cushion to absorb reduced cash. Agencies with multiple revenue streams handle equity arrangements better.
Related Articles
- Build partner vs paying upfront - the broader funding decision.
- I have an app idea - 5 ways to get it built - where equity fits among all paths.
- Custom software cost in Croatia - the full cash cost for comparison.
Considering an equity arrangement?
Book a free 30-minute Discovery call. We will evaluate the idea and tell you honestly which structure fits. Reach us at [email protected] or via the form on our homepage.