Sweat Equity
Definition
Sweat equity is ownership earned through work rather than cash: founders, early employees, and sometimes advisors or contractors compensated in shares for below-market pay.
How it comes up in fundraising
Sweat equity is why vesting exists: contribution-based ownership must be earned over time, not granted permanently on day one.
Frequently asked questions
How is sweat equity valued?
By negotiation, usually referencing forgone market salary and risk; formalize it in shares with vesting rather than vague promises.
Can contractors be paid in equity?
Yes, with proper agreements and IP assignment; loose equity-for-work arrangements are a classic diligence problem later.
Related terms
Put this term to work
Definitions win negotiations only when you are in one. Find the investors who fund your stage and start the conversation.
Browse the investor database