A founder once slid a term sheet across a coffee table and asked, with the practiced casualness of someone who had done this many times, whether I would consider taking part of my fee in equity. He named a percentage. He named a valuation. He did the math out loud. The number sounded reasonable in the room, and on the drive home it sounded ridiculous, and by the time I was at my desk it sounded reasonable again. I took the call to a friend who had spent twenty years in venture, told him the deal, and waited for him to react. He laughed for what felt like a long time.
That laugh saved me from a mistake I might not have caught for years. The percentage was generous on paper and almost worthless in reality once you accounted for liquidation preferences, the dilution stack between Series A and an exit, and the simple statistical likelihood that the company would not, in fact, exit. I declined the equity, kept the cash rate, and stayed friends with the founder. Six months later he raised a down round. Three years later he sold the company for less than the paper value of the equity he had offered me, and I would have made nothing.
The conversation about equity for fractional executives is one we rarely have publicly, and yet it comes up in nearly every founder-stage engagement. Cash is tight. The founder needs a senior operator. The math is obvious to them, and the math is mostly bad for us. That doesn’t mean equity is always wrong. It means equity is a structured negotiation, not a favor.
A few things I have come to believe:
- Equity should never replace cash; it should sit on top of a market rate or a clearly discounted version of one, with the discount priced.
- The shares should vest on a schedule that reflects the fractional engagement, not a four-year employee grant pretending to be one.
- Cliffs should be short or absent for short fractional engagements.
- Any anti-dilution, single-trigger acceleration on change of control, and treatment in a down-round scenario should be in writing — not because you do not trust the founder, but because the founder may not be the one signing the check at exit.
- And whoever advises you on the term sheet should be someone whose laugh you can hear before you sign.
Then there are the alternatives. Performance-based fee adjustments tied to a clear, measurable revenue outcome. Advisory shares with a defined scope of work and a defined end. Profit-sharing on incremental gross margin. Each has its place and each carries its own quiet failure modes. None of them belong in a verbal agreement.
The pricing essays already published on Vendux argue, rightly, that pricing yourself is the hardest conversation in this work. Pricing yourself in something other than cash is the second-hardest.
When the next term sheet slides across the coffee table, what are you actually being asked to underwrite?