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Paying Freelancers With Equity Shares: An Idea For Bootstrapping Startups

For new startups, hiring employees can be too steep a cost to shoulder. A platform that allows them to bring on freelancers as partial owners aims to solve that problem.

Paying Freelancers With Equity Shares: An Idea For Bootstrapping Startups
[Photo: Jose Aljovin/Unsplash]

If you have a good startup idea but no money to build it, you might think of selling some equity and using the cash to hire people to work for you. Lots of founders do that. But you might, instead, cut out a stage in that process and actually use equity to hire staff through a marketplace called Loom.

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Loom, based in Austin, Texas, has linked up dozens of would-be founders and freelancers since it was founded in 2016. Projects offered on the site currently include a cannabis e-commerce startup in California that needs a back-end developer. It’s offering a 10% equity stake, plus a cash budget of $20,000. Then there’s an “epic music startup” that needs someone to build a “reverse polling ‘Heartbeat'” web site feature. It’s offering 1% and a budget worth $30,000.

[Photo: Loom]
Cofounder Chase White argues Loom solves the problem that many founders are willing give away parts of their business, but don’t know freelancers who might be prepared to do work. Plus, the platform helps people who really don’t have any money to offer. Up to 15,000 freelancers (mostly developers) are listed on the platform, White says, and about 1,000 founders have posted projects so far.

[Image: Loom]
White got the idea for Loom while building his previous startup, Localeur, a travel site that sources tips from locals in hundreds of international destinations. Paying for early development allowed Localeur to eventually bring in about $3 million in funding. Loom’s website itself was built by a freelancer who got 2% of the company upfront (he is now CTO).

“It’s a new approach to creating products that’s a more efficient use of resources,” White says. “Some of the best ideas in the world are trapped in the minds of non-technical people. This lets them get those ideas out without any money down.”

[Image: Loom]
In fact, most of the deals on Loom are equity-plus-cash arrangements. Freelancers are more likely to get involved, White says, when they can be assured of getting tangible payment upfront with the hope of greater reward down the line.

To use Loom, freelancers list their skills and work histories; startups stipulate what they want and how much they’re willing to offer. Loom suggests both parties sign a stock-sharing agreement before arranging the working deal. To cover its costs, Loom charges startups a $50 fee to speak with potential freelancers. The platform also takes 10% of any cash that changes hand (payments and equity shares are managed through the platform).

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Loom may not yet be at the scale of powerhouses like Upwork or Freelancer.com. But it allows genuinely bootstrapped individuals to pursue dreams without money. That opens up entrepreneurship to more types of people, from mothers of three with childcare app ideas, to teachers with education app concepts to make their classrooms run more efficiently.

“It’s about connecting people together so they can leverage what resources they have and bring ideas to life,” White says.

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About the author

Ben Schiller is a New York staff writer for Fast Company. Previously, he edited a European management magazine and was a reporter in San Francisco, Prague, and Brussels.

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