Valuing work for equity: how the price of sweat equity actually gets set

There are plenty of texts explaining media for equity and its relatives, with the familiar names from Zalando to momox. What almost none of them contains is the question these deals actually hang on in practice: how does the price get set? Anyone offering work for shares has to be able to answer it, in a way a cash investor can verify. How our model is structured overall, a service agreement plus a convertible loan, is laid out in Knowledge for Equity. This piece is only about the one question that article leaves open: the valuation.

Work for equity: the question every cash investor asks first

When we enter a company with work instead of money, someone in the same round has usually wired actual cash. If that person is any good, they always ask the same question: why are your hours worth what you claim? The question is not rude, it is the right one. An overvalued contribution in kind dilutes everyone else, silently. With money, value is trivial to check. With work, it is not. That is exactly why the valuation is not a formality but the core of the deal.

Our answer has three parts: a price that has to survive comparison with the market, proof that the work was actually delivered, and a mechanism that corrects automatically when less arrives than promised. All three are in the contract. None of it is negotiation folklore.

Valuing sweat equity means valuing at arm's length

Arm's length means the work package costs what an unrelated third party would charge for the same service. Not more, because then the other shareholders pay for what we award ourselves. Not less, because then we give away what our operating arm otherwise sells at market rates. The yardstick is sober: the rates at which the same people do the same work for paying clients.

To make that checkable, the package is broken down. No line item at our end is called strategic support, lump sum. Every item names a service, a number of hours and a rate, and the rates differ: senior strategy work costs more than execution, as it does everywhere in the market. The media-for-equity industry anchors this in the list price of an advertising second, as described by für-gründer.de. Our anchor is the fees our work earns outside of equity deals. Whoever has no such anchor has no valuation method, only a claim.

A worked example: 48,000 euros of work, hour by hour

Here is what such a package looks like at our end, numbers lightly rounded, structure real. Six months of growth work for a company after its first round:

Growth strategy and positioning: 40 hours at 180 euros, 7,200 euros. Performance marketing setup, accounts, tracking, campaign structure: 120 hours at 150 euros, 18,000 euros. Brand building and creative: 80 hours at 150 euros, 12,000 euros. Ongoing management and reporting across six months: 80 hours at 135 euros, 10,800 euros. Total: 48,000 euros.

48,000, not 50,000. The number follows from the calculation, not the calculation from a pretty number.

Those 48,000 euros are not paid out. They sit in the company as a convertible loan and convert in the next round on the same terms as the other investors' money. For the valuation this means: our work buys shares at exactly the price outside money pays. There is no sweat equity discount, in either direction.

If we deliver less than promised, less converts

The second part of the answer is proof of performance. Every month, a statement lists what was delivered, and management accepts it or does not. Only what is delivered and accepted converts. If, in the example, we deliver 60 of the 80 management hours instead of 80, then 45,300 euros convert instead of 48,000. That is not goodwill, it is the mechanics of the contract, and it protects both sides: the team from a partner who receives shares for promises, and us from the suspicion of being exactly that partner.

The legal basis for separating service and shareholding was confirmed by Germany's Federal Court of Justice in the Qivive ruling (BGH, judgment of 16 February 2009, II ZR 120/07): a properly paid service agreement with a shareholder is not a hidden contribution in kind. Why that matters for the structure as a whole is covered in the model article; for the valuation, one consequence matters most: the work has to be documented as work, not as equity prose.

Why transparency is not optional when equity is paid in work

You can hide an overpriced work package for a while, in a friendly round even for a long while. At the latest in the next financing round, the other side's lawyer redoes the math, and then the hidden number costs more than it ever earned: trust, time, sometimes the deal. That is why we put the full statement in front of the shareholders before anything is signed. Anyone who thinks our rates are too high should say so while saying so is cheap.

There is a second reason, and it is an entrepreneurial one: a team that has seen our calculation knows afterwards exactly what growth work costs in the market. That knowledge is worth real money in the next negotiation with any agency, and it fits what we wrote about access and network as capital: what we contribute should be checkable, not a matter of faith. If you have a work-for-equity offer on the table right now, ours or anyone else's, and cannot see the calculation behind it: ask for it. And if you want to run the numbers with us, show us what you are building.

Note: this article is an entrepreneurial assessment, not legal or tax advice. The concrete structure of any deal belongs with a lawyer and a tax advisor.