Equity, $$

Mt. Baker

I am a co-founder of Impact Hub Seattle, a coworking space in Pioneer Square.
*sigh*
This sentence has taken me a long time to say.

We started the Hub in November 2011, but as with any startup, had been working on the concept for a long time prior. My interest in this idea started when I was working at Social Venture Partners; collaborative action was a popular term at the time, but actual collaboration was easier said than done. My theory was that this was because of the lack of a physical gathering space – I drafted a business plan to show the ED of SVP at the time, and from there was introduced to Brian, who was working on a similar plan and would end up being my co-founder. We would have two more co-founders join us – one of whom ended up being a lead investor and one that did not monetarily invest – both of whom left after a year.

I made a decision when we first started the Hub not to take equity. This was a conscious decision; I chose liquidity in the form of a higher salary for a variety of reasons, chief among them:

  • I took a steep pay cut after starting Impact Hub (not drawing a salary at all, for awhile). It’s difficult to go back once you are used to a certain way of living.
  • I had student loans I needed to pay off.
  • Impact Hub’s end game was never going to be a big acquisition or merger that would result in millions of dollars paid out to shareholders. That just wasn’t – and isn’t – the type of company we are.
  • Tax-wise, having equity wouldn’t benefit me at all. It would only complicate my taxes with no huge upside.
  • Because Impact Hub is an LLC and therefore a member-organization, a big factor for me was whether or not I would be respected as its managing director by our board if I didn’t take equity. In the end, I made the informed decision that because of our mission and value structure, being a member of the LLC didn’t matter as much as it may have mattered in other companies.

I did my homework when making this decision. At first, taking equity seemed like a no-brainer (‘I’m an entrepreneur! That’s what entrepreneurs do, right?’), but after multiple conversations with helpful people, I basically ended up at my kitchen table with paper and pen, making a cost / benefit analysis. Ultimately, the costs for taking equity were much higher than the benefits. As with anything, comparison is inevitable, and I found myself realizing that the main reason I continued to feel like I should take equity was because that seemed to be what I should do per industry-standard. That reason just wasn’t good enough for me. So, liquidity it was.

As time has gone on, I’ve paid the price for my decision - not monetarily, but rather, in stature. As originally suspected, perhaps both a combination of my age and my lack of traditional ownership in the company, the board took a long time to recognize my leadership role. This was especially apparent during a recent CEO transition. Based on what I know now, I will be taking equity in the company once we open up a new round of investment, solely for the purpose of needing to conform to traditional views of company ownership in order to be seen in a certain way.

*******

For a long time, I held onto a lot of shame because I didn’t have equity. How could I truly call myself an entrepreneur if I didn’t have equity? Am I actually a co-founder? While that shame still exists, it is a much smaller hole, and no longer stagnates my ability to function as a boss in my day-to-day. This evolution is for no reason other than experience, both in experiencing the learning stages that come from building a company and because I am better equipped to identify my own value.

In truth, despite my present ability to discuss this subject, I still have trouble thinking of myself as a co-founder because I don’t own part of the business. Not taking equity has made me question what an entrepreneur really means. Does it mean someone that owns a stake in a company? Someone that has invested monetarily in a company? While I didn’t invest money into the company in the most direct sense of the phrase (mostly because I was 19 and had none to invest), I made plenty of financial sacrifices – quitting my well-paying job, not drawing a salary at first, working 100+ hour weeks for a good chunk of our beginning. If I don’t own equity, how is that ownership defined?

To me, equity has become a very narrow definition of what entrepreneurship and ownership really are. In this case, narrow definitions can be dangerous since they close off so many talented, entrepreneur-like people from thinking of themselves as owners in a company, which can have disastrous results when building a company.

Most entrepreneur’s first lesson is that one cannot do everything; you must hire for your weaknesses. Building a company takes so much out of so many people, that ownership is paramount to a new company’s success; the one thing a quality leader can do is carefully curate an exquisite, informed, and unique sense of ownership among their team.

To me, while my experience of not taking equity has made me realize the importance of taking it in certain situations so as to conform to traditional ownership mentalities, as I build my team and my company and whatever else I do after Impact Hub, my definition of entrepreneurship and ownership will be so much broader than simply taking equity, so as to envelope all forms of ownership and entrepreneurship in the process of creating a business.

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