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Ask HN: Profit Sharing vs Equity

2 points by ieatpaste ↗ HN
I apologize if this thread already exists (searched searchYC and didn't find anything on profit sharing)

What are your thoughts on investors getting a share of the profit vs getting equity? What percentage equity would equate a 10% profit share? How does this change from a short-term and long-term perspective?

Thanks for any input!

4 comments

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jeremyw
I've been thinking about profit sharing, not in the context of investors per se (who probably _should_ get equity), but the teams around various projects in my nascent company. I want to put things together quickly and formalize rewards with a barrier to ownership, investment and selling the company. The structure is generally one that maintains or ramps rewards for involvement and attenuates them over time (~1yr) as they leave. And the details can be explicit and open to all.

Thoughts in this vein?

ieatpaste
Vested equity might be a better choice for employees, since that portion of the profit would increase cash flow and the equity provides incentive for improving the company long-term. A profit-sharing rewards systems might be too much like performance-based sales pay and is shown not to be good for products in the long run.
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[dead] hexane
I'm having trouble picturing any savvy investor going for something like this.