Usually pay cash, or cash plus a small stake that vests as milestones are delivered. Take the offer only if the stake is small, the code is assigned to you in a signed document before any shares move, and the agency is taking real product risk. If it wants a say in product decisions or a board seat, that's a co-founder conversation, not a vendor discount.
What does the agency's offer actually buy you?
It buys you a lower cash bill today, paid for with a slice of the company forever. Whether that's a good trade depends on two numbers: the cash you save and what the stake could be worth.
Cash saved vs. share given: a worked example
Agile Cookies, a studio that publishes its own equity terms, puts the market rate for an MVP at GBP 15,000-50,000 or more. Say your agency quotes GBP 40,000 and offers 50% cash plus 5% equity. You save GBP 20,000 now.
The break-even is simple: cash saved divided by the stake. GBP 20,000 divided by 5% is GBP 400,000. If the company ends up worth more than that, the equity cost you more than cash would have.
Now pick a valuation, and treat it as your own assumption, not a market figure. Say you raise a seed round at a GBP 2,000,000 post-money valuation (what the company is worth once the new money is in). The 5% is then worth GBP 100,000, five times the cash you saved. That's the case you're betting on when you take the deal, and the case the agency is betting on too. On a GBP 15,000 quote with the same 50/50 split and 5% stake, the break-even drops to GBP 150,000.
How much equity do agencies ask for?
Each figure here is the vendor's own, for its own deals. Agile Cookies says a typical client gives 3-8% and its own deals run 3-7%. It lists as red flags more than 10% for an MVP, an agency that won't write down scope, a board seat for under 10%, and any agency claiming the IP. Pixelperinches quotes hybrid deals at $10-30k cash plus 5-15%, and 15-30% for pure equity. Its red flags: no IP assignment, no vesting, and a developer already on five or more equity projects.
So when an offer arrives, check where it sits against these ranges. Our view: if the agency asks within Agile Cookies' 3-8%, counter near 3%, and treat anything above 10% as a reason to say no.
Agencies rarely take equity at all, according to Software Planet Group. It argues that equity swaps predictable cash for an uncertain payoff, and that equity without decision rights is "outsourcing with venture-level risk". Its advice is to start paid and offer equity once delivery is proven. Our view: an agency pushing hard for equity on day one may be short of paying clients, so check its references.
When does equity make sense, and when does cash win?
The test is whether the agency shares your decisions and your risk. A vendor that bills a normal fee and also takes your upside is collecting twice.
| Situation | Move |
|---|---|
| Spec is defined, agency takes no product decisions | Pay cash |
| Demand validated, agency shares decisions, stake small | Cash plus vested stake |
| Agency wants decision rights or a board seat | Treat as a co-founder deal |
Agile Cookies says to talk to at least 20 potential users first, and that equity suits a founder short of capital. It doesn't suit a two-week turnaround. If you can afford cash, we'd pay it: you keep the whole company and you can fire a vendor you're paying more easily than a shareholder.
The bottom row deserves a straight answer. An agency that wants influence over what gets built is asking to be a partner, so negotiate it as one. Our guide to co-founder equity for a late joiner covers how those splits work.
Before you go further with any agency, ask how many of its equity clients from the last five years still operate, and call two of them (Prizmstack's suggestion). Walk away if the terms come from a salesperson rather than a principal.
What do you put in writing before any shares move?
Get these five things on paper before the first share is issued.
IP assignment signed first
Paying for code, in cash or shares, doesn't by itself make you the owner. In the US, copyright law (17 USC 204(a)) says a transfer of ownership isn't valid unless it's in writing and signed. For the European position, see our guide to the IP assignment agreement for contractor code.
So the assignment is a separate signed document, and it should be signed before the first share is issued. Agile Cookies says its clients own the code and the studio's equity covers the company, not the IP. Prizmstack adds that all work product should be yours whatever the stake. If an agency hedges on this, walk.
Vesting on delivered milestones, not on signing
Shares that arrive at signing are a gift if the agency then stalls. Entrepreneur's piece suggests staggering vesting along MVP milestones, and Agile Cookies says its stakes vest over time or on milestones. We'd choose milestones, each one accepted by you, because that ties shares to working software. Write down what happens to unvested shares if you part.
Scope and "done" defined
A stake with no written scope is how a 5% deal becomes a 5% deal for a product that never ships. Define each milestone by what you can click through and test. Our view: fixed scope with fixed milestones suits this better than hourly billing.
Separate investment documents
Prizmstack's advice: keep the equity, with its vesting and dilution terms, in its own investment documents, separate from the development contract. Then a dispute over the build can't tangle with the question of who owns what share, and the reverse.
Exit terms
Ask what happens to the stake if you sell the company or raise money, and what happens if the agency walks away mid-build. Laws and tax rules differ by country, and so does how investors treat shares held by a vendor, so ask a lawyer and an accountant before signing, and your lead investor's counsel if you're raising.
What if the build stalls?
Hold back the next milestone's shares or cash, and get a technical review first. A senior engineer with no tie to the agency should read the code and the release history and tell you what the work to date is worth. If you've held the repositories, cloud accounts and domains from day one, you can switch builders without asking permission. If you haven't, taking over a codebase when the agency won't cooperate covers the order to do it in.
What this means for your answer to the agency
You have three possible replies. Decline if the agency won't sign the IP assignment first, or if its terms come from sales. Counter if the idea is validated and the agency would genuinely share risk: ask for cash plus a stake near the low end of the vendor ranges above (our view: 3% if the agency asks within 3-8%), vested on milestones you accept, with the IP assigned first. Accept as offered only if all of those already hold.
If you notice you want the agency to make product decisions, you're shopping for a co-founder with a vendor's invoice. Read whether you need a technical co-founder before you answer, because the right deal then is a different one. Other ways to structure the build sit under engagement models for startups.
Paying cash for the build through HighCircl
If you've decided on cash, or the agency has stalled and you need someone to carry on, you need a senior engineer who can own the product without owning part of the company. HighCircl charges no recruitment fee, and we match you with candidates in 72 hours. You pay cash, so there's no stake to unwind later. See hiring founding engineers through HighCircl.
FAQ
How much equity should I give for an MVP?
Vendors state their own ranges. Agile Cookies says 3-8% is typical, 3-7% in its own deals, and over 10% is a red flag for an MVP. Pixelperinches quotes 5-15% alongside $10-30k cash. Use the break-even sum: cash saved divided by the stake.
Do agencies accept equity instead of cash?
Some do, but Software Planet Group says agencies rarely take equity because it swaps predictable cash for an uncertain payoff. Prizmstack names a few agencies that run equity models, and says to check how many of their equity clients still operate.
Should the agency's shares vest?
Yes. Tie vesting to delivered milestones that you accept, not to signing. Agile Cookies says its stakes vest over time or on milestones, and Entrepreneur suggests staggering vesting along MVP milestones.
Who owns the code if I pay in shares?
Paying in shares doesn't settle it. In the US, 17 USC 204(a) requires a signed writing to transfer copyright ownership, so get a signed IP assignment before issuing shares. For Europe, see our IP assignment guide, and ask a lawyer in your country.
Is it better to find a technical co-founder?
If you want someone to share product decisions and risk, yes. Equity without decision rights is a vendor deal with venture-level risk, as Software Planet Group puts it. Equity with decision rights is a co-founder deal and should be negotiated as one.
Sources
- Agile Cookies: Equity for development model
- Prizmstack: Do software development agencies ask for equity instead of cash?
- Pixelperinches: Equity vs cash
- Software Planet Group: Why software development companies rarely work for equity
- U.S. Copyright Office: 17 USC chapter 2, copyright ownership and transfer
- Entrepreneur: David Teten on paying for an MVP with equity