3 Signs Your Startup Shouldn't Work With a Marketing Firm in Exchange for Equity Equity payments are becoming a commonly used form of currency. But that doesn't mean they're right for you.

By Erik Huberman

Opinions expressed by Entrepreneur contributors are their own.


Startups don't typically have much money to pay outside marketing firms, but they do have one thing they can offer: a stake in those companies. Over the past 10 years, equity has become a commonly used currency, and it isn't hard to see why. Almost 50 percent of startups fail, but with high risk comes the potential for high reward. Companies such as Uber, Snapchat and Airbnb are worth more today than traditional giants such as AOL. GitHub last year was valued at $2 billion, and messaging startup Slack achieved a $3.8 billion valuation in its latest funding round.

Equity payment isn't just an American phenomenon: Sweat equity is such a valuable commodity in today's global marketplace that the government of India is looking to increase the legal limit to help boost its startup culture. Back on U.S. soil, my own company has taken equity in 12 different startups over the past two years, and other marketing firms are just as enthusiastic.

But is it a good idea for all startups to give up equity in exchange for something like marketing assistance? Well, yes and no:

When offering equity payments is smart

For some startups, it makes sense to offer equity for services. If a startup lacks marketing experience or the necessary capital, offering equity in exchange for assistance is a great idea.

Consider Casper Sleep Inc.'s mattress ads, for example. The startup's posters appeared in nearly every subway train in New York City in 2015 in a campaign that sprung from its partnership with a branding firm it had paid in stock rather than cash. Without that campaign, would Casper have managed its $55 million funding round?

Companies without effective marketing strategies might as well not have a product; waiting for opportunity to knock means losing ground to competitors. But that doesn't mean they should hand over equity to the first marketing firm that offers its services.

Related: When to Share a Piece of the Pie

When offering equity payments is not so smart

Here are three signs that a prospective partnership might not be beneficial enough to warrant offering an equity stake:

1. An informed or instinctive lack of trust. Trust between a startup and its marketing firm is essential to developing a successful relationship. Any potential partner must be vetted like a potential employee; if the trust isn't there, walk away. On one occasion, we met with a startup that was going through some intense political problems. We left, knowing we didn't want to be part of that argument.

A few telltale signs of an untrustworthy agency include infrequent correspondence, incomplete communications and a tendency to point out possible problems but not offer solutions. Some of these issues may not be immediately apparent, so startups need to protect themselves from the beginning. Include an earn-out in the contract -- don't hand over equity until the marketing firm has shown some results.

2. Wants placed ahead of needs. We once worked with a startup that wasn't ready to engage with us. Its product wasn't finished, and we were earning equity without any way to begin marketing. Instead of wasting the startup's money and time, we chose to end the relationship.

Getting carried away is easy to do, but don't think about marketing until the product is ready to go. Forty-two percent of startups that fail do so because there's no market need for their product. The ducks all need to be lined up with a product in place before a partner is brought on, or everybody loses.

Related: 7 Shortcuts That Can Kill A Startup Business

3. Cultural discord exists. Startups shouldn't offer equity to marketing firms that don't fit their culture. How can there be understanding if two business models don't share common values?

When my own company partnered with Sweat Tailor, we did so because the startup's objective of creating the perfect pant and the perfect clothing "experience" aligned with our own goal of filling a real need in the marketplace. The company had no money to pay us, so taking on the work as a partner in exchange for equity was a perfect solution.

Don't throw around equity like Monopoly money. Month-to-month contracts offer a great alternative to marketing initiatives that demand deeper pockets, and they allow startups to evaluate potential partners.

Related: The 10 Most Reliable Ways to Fund a Startup

Do your homework on potential partners: Study their company websites, talk to other clients and find out about their core values. Remember that playing nice doesn't always mean sharing. If they don't fit, don't partner.

Erik Huberman

Founder and CEO of Hawke Media

Erik Huberman is the founder and CEO of Hawke Media, a Los Angeles-area outsourced digital CMO agency for companies like Evite, Bally Total Fitness, Verizon Wireless, Eddie Bauer, Red Bull and many other brands. A serial entrepreneur and a brand and marketing consultant for eight years, Huberman previously founded, grew and sold Swag of the Month and grew Ellie.com’s sales to $1 million in four months. Huberman is available to be a keynote speaker.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Related Topics

Side Hustle

The Side Hustle She Started in Her Princeton Dorm Room Led to a $510 Million Business: 'Don't Take No for an Answer'

Danielle Cohen-Shohet launched a successful side hustle in college, combining her love for design and entrepreneurship, which ultimately led to GlossGenius.

Side Hustle

These Are the Highest-Paying Side Hustles for a Single Day of Work

Earn the most money in the least amount of time.

Growing a Business

4 Success Lessons From the Brothers Who Made Chickpea Pasta Mainstream

These are the values that Banza co-founders (and brothers) Scott and Brian Rudolph instilled as they scaled.


The Burden of Breaking Barriers is Pushing Black Leaders to Breaking Point. This DEI Expert Reveals Where We Are Going Wrong.

No matter where we look, Black Americans are breaking barriers as the "firsts" in many major industries, but it's a heavy burden to bear.


How to Align Your PR and Marketing Strategies to Get More Out of Both

A collaborative approach that acknowledges the distinct roles and perspectives of marketing and PR professionals can be a force multiplier.

Business Ideas

55 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.