Founders hear it constantly: "Don't pay people with equity. Equity is expensive."
It sounds like hard-won wisdom. Mentors, investors, and operators repeat it like a law of physics. But if you actually do the maths, the claim falls apart.
At the same valuation, giving equity for £X of work costs you the same dilution as raising £X in cash and paying £X in cash. The cost isn't the equity. It's the mess.
Here's the proof — and then the real reasons sweat equity can still hurt you.
The myth, busted with one formula
Let:
- V = pre-money valuation
- C = the cash you need (or the fair cash value of the work being delivered)
Case 1: You raise cash, then pay cash
Raise C at pre-money V. Your post-money becomes V + C. The dilution:
Dilution = C / (V + C)
Case 2: You pay for the work directly with equity
Grant equity worth C, priced at the same valuation. The implied dilution:
Dilution = C / (V + C)
Same formula. Same dilution. Same cost — mathematically.
Quick example
- Pre-money valuation (V) = £4,000,000
- Work needed (C) = £400,000
400k / (4.0m + 400k) = 400k / 4.4m = 9.09%
Raise-and-pay cash: 9.09% dilution. Pay with equity at the same valuation: 9.09% dilution.
If someone tells you equity is inherently more expensive than cash, they're not making a maths argument. They're making a structuring argument — or an incentives argument.
Why equity-for-services feels more expensive (even though the maths is clean)
The maths is clean. The real world isn't. Sweat equity tends to become expensive for four specific reasons.
1. You rarely price it like a proper round. In practice, founders give equity earlier (when valuation is lower), with no pricing anchor, in a negotiation shaped by urgency and fear. That changes the dilution because V is smaller — not because equity is somehow more costly by nature.
2. You create cap table debt. This is the silent killer. Equity-for-services tends to produce lots of small holders, inconsistent terms, unclear obligations, and awkward conversations in every future round. Investors don't hate dilution. They hate friction.
3. You lock in permanent ownership for a temporary contribution. A contractor might work for eight weeks and remain a shareholder for eight years. Without proper vesting, milestones, termination rights, and buyback mechanisms, you've created a one-way door.
4. You add risk for both sides. Founder risk: under-delivery, disputes, misalignment, and future funding delays. Expert risk: illiquidity, no control, unclear rights, ongoing dilution, and paper that never pays. That's why equity becomes expensive emotionally and operationally — not mathematically.
So why do some investors push the "equity is expensive" line so hard?
Sometimes it's good advice, poorly explained. What they usually mean is: don't mess up your cap table, don't create bespoke arrangements that slow a future round, and don't give meaningful ownership to someone who isn't truly long-term aligned. Those are valid points.
But there's a second layer founders should understand: incentives.
Venture capital firms run on two things — ownership upside from exits, and a fee base to fund the machine that finds, evaluates, and supports investments. That model depends on capital being deployed early, into meaningful equity positions.
So if founders start reliably accessing high-quality execution without raising as much pre-seed or seed capital, two things happen: early ownership opportunities shrink, and the economic base for running large early-stage platforms compresses.
This isn't a moral judgement — it's basic market dynamics. And it's why you'll sometimes see a strong narrative push against equity-for-services: not because the maths is wrong, but because the consequences threaten the current shape of the market.
The bigger implication most people miss
If startups can consistently access senior talent, delivery, momentum, and credible proof points without a large early cash round, then a portion of pre-seed and seed investing becomes less necessary.
Venture capital doesn't disappear — it shifts. Later, when scaling capital is genuinely needed. Into fewer, higher-conviction bets. Or into models that integrate execution more directly.
In short: if founders can buy outcomes without buying runway, the early-stage fundraising market naturally contracts. That's the underlying tension — execution alternatives reduce the need for early cash, and early cash is the entry point for a lot of traditional venture economics.
The conclusion founders actually need — and what smart ecosystem builders are already doing
"Equity is expensive" is a myth as a mathematical statement. Equity-for-services can still be a terrible idea structurally.
The right takeaway: don't avoid equity — avoid messy equity.
This distinction matters far beyond individual founders. The most forward-thinking incubators, accelerators, and venture funds are starting to recognise that the quality of early execution — not just the amount of early capital — determines which companies survive to Series A. Portfolio companies that arrive at their next round with real traction, a clean cap table, and proven delivery are fundamentally easier to back, price, and exit.
That's why operators — accelerators, studio funds, and sector communities — are increasingly building structured execution capacity directly into their programmes. Not as advisory. Not as mentorship. As scoped, milestone-based, equity-aligned work that moves the company forward while keeping governance clean.
That's precisely what Execution Capital is built for. Operators launch their own execution-led ecosystem through a dedicated investment vehicle. Startups publish precise delivery needs — not pitch decks. Vetted senior experts bid with transparent terms: cash for delivery, equity-linked upside for the long game. The result is a portfolio of companies that have earned their momentum, with cap tables structured to survive scrutiny.
No cap table fragmentation. No ambiguous arrangements. No mispriced risk. Just execution — with the structure to back it.
Learn more at execution.capital.
