I like your willingness to put your skin in the game with your client -- without giving up your need for a base compensation to be covered.
I think that you should consider an internal consistency between proposed models based on a set of revenue assumptions. Meaning that you would earn the same total compensation in the equity or revenue share model based on the same set of assumptions.
So in your model it seems that your total fee was projected to be $15,000. This was on an assumed the projected spin-out value was $250,0000. What revenue drove that spin-out value? Let's assume it was projected annual revenue of $50,000? So 5% of equity would be 25% of projected revenue in order for the total one-year compensation to be the same.
Then I would go in and offer a couple models:
- 100% of total fees
- total fees + equity
- total fees + revenue
- total fees + revenue + equity
In this approach your total fees are your total fees -- that value of your service is not under negotiation. You are showing your flexibility and respect of the cash position of the start-up to have that total fee paid in a mixture of equity, revenue . . . .
Remember -- Vendors are paid the full fee. When you agree to receive a percentage of your compensation as equity you are agreeing to become an investor in the company. You need to make sure that you are treated as such. When you agree to take a percentage of your compensation benchmarked against revenue you are joining the executive team who has a responsibility to the company performance. You need to ensure that you are treated as such.
Nothing sucks more than agreeing to have a percentage of your compensation benchmarked against the actions of other people of which you have no influence or impact what so ever. Especially in the start-up environment.
Good luck with your negotiation on your benefit package!
