Sweat Equity

It is not uncommon for entrepreneurs to use creative, non-salary means to attract good talent. After all, cash is a precious resource in any start-up. One common way is to offer key employees some form of equity in lieu of salary.
Red Herring reports on a new twist to this strategy. More and more experienced executives, including middle managers, are actively seeking opportunities to work for less than market pay if they can get a “piece of the action.” They are becoming known of as angel employees.
While this is a great way to save cash and lower the breakeven point, it does have the potential to make things complicated. All of these managers are now shareholders and have legal rights. The more partners in the deal, the more complex things can become. I would only recommend this strategy for businesses with a clear and relatively quick exit plan. I would not recommend this for entrepreneurs who plan to build and hold their business. It is a recipe for too many headaches with so many added equity holders.