Real Ownership Scenarios
Scenario 5: Sweat Equity Partnership
Equity in exchange for work, not cash.
Practical Explanation
An operator joins the business and earns equity through performance and tenure, with vesting over 3–5 years. Common when the founder needs operational lift but the operator has no capital. Lower equity stakes than earn-ins, but no cash investment required.
Real-World Example
GM joins a $5M revenue business; vests into 25% over 4 years tied to revenue + retention.
Typical cash required
Typically zero.
Experience required
High — performance is the payment.
Advantages
- ✓No capital required
- ✓Performance-aligned
- ✓Founder retains stewardship
Risks
- !Equity is illiquid
- !Dilution risk
- !Disputes on vesting
Frequently Asked Questions
Tax-wise?
Usually structured as profits interest or restricted equity with 83(b) — talk to a CPA.
Related guides
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