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I was approached by a startup to do some work developing their product. They do not have revenue or funding yet and offered to pay a “market” salary for a contract period that would be 100% deferred until funding was raised. This is obviously a very bad setup for me since I bear all the risk.

I am trying to come up with potential counteroffers where we could still work together, but I have limited knowledge in some typical structures. My lawyer has some experience in dealing with these contracts, but I would like input from people as to what has worked for them historically.

I have proposed having part of the cash paid as work is done and part deferred and also having some kind of equity component.

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    A "market" salary that may never be paid is not a market rate - you'd need to take the market rate and divide it by the probability that the company will actually pay you. If there's only a 10% chance the company gets funded/you get paid, they should be offering at least 10x the market rate in deferred salary. The risk might be worth it for a huge payout (so long as you can eat the loss), but few would find the possibility of not getting paid at all to be acceptable, so you'd need to be compensated very well to assume that risk yourself. – Nuclear Hoagie Mar 2 at 17:13
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    Walk away and forget about it. As a dev you'll get 20 whacky "offers" a year like this. It's not worth wasting a second's thought on. – Fattie Mar 2 at 18:11
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    I don't work for promises of future payment, because that doesn't pay my bills. If it were me, I'd simply and politely decline their offer. – joeqwerty Mar 2 at 18:19
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    I work for only 2 things: Cash or equity (or both. Both is good ^^). If they’re not going to pay you in one, they better be paying in the other, or else you walk away. – Kaz Mar 2 at 20:50
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    You do the work. You maintain 100% ownership of the work you do. If they want to delay the pay, you delay the transfer of ownership until they can afford it. I agree with Fattie though. Walk away. If you want to work on something cool, work on your own project. Also, I recommend you read "The Partnership Charter" should you ever consider entering a partnership of any kind. That book will save you a lot of pain. amazon.com/Partnership-Charter-Start-Right-Business/dp/… – Stephan Branczyk Mar 3 at 4:22
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Ask for money, either by the hour or a fixed number. When they can't give you money because they have no funding yet, ask them to call you again when they secured the funding for their business venture.

Most startups fail, and most which don't fail don't end up as industry giants either. So any deal which relies on them being successful (or even solvent) in a couple years from now is a gamble you are likely going to lose.

When it's a long-term contract, then "part now, part later" agreements are common. It's usually a good idea to negotiate milestone payments. Divide the project into milestones, and negotiate that payment is due whenever you deliver a milestone.

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but I have limited knowledge in some typical structures.

Typical strategy in these scenarios is to politely decline, then crack up laughing when you get around a corner.

If there's any risk involved you do not do it at the market rate. So offering this is a red flag. If they were serious they would have offered equity from the start.

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    WIth more background: As IT Freelancer you have plenty of work - so there is no need to entertain a wannabe's startup idea of paying later. – TomTom Mar 3 at 6:31
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They do not have revenue or funding yet and offered to pay a “market” salary for a contract period that would be 100% deferred until funding was raised.

Walk away and forget about it.

I am trying to come up with potential counteroffers

Here is one,

"I will work at a special low rate of $3,000 a week. Payment is in cash on Fridays for each coming week."

If they can't do that, just forget it.

As a dev you'll get 20 whacky "offers" a year like this. It's not worth wasting a second's thought on.

It's not even worth analyzing further but, if the product idea is so crap that they can't get funding in the current environment, it's truly a waste of their time, they should just stop.

To repeat. If their idea is so crap that they can't get funding in today's environment .. it is a dramatic waste of their time.

(Given that, the idea of you being involved is a non-starter.)

Astonishingly if you think about it: Both you and they would actually be better off if: You just took some other contract for a few months, worked, got your pay each week, and gave it to them.

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