Okay, show of hands those who are little to unaware about sweat equity. Come on, don’t be shy now. I used to be one of them and I am still learning more and more about it and the more I learn the more hooked I am on this. In time, I will be sharing everything that I will come to know about this sweet sweet thing.
This article contains my knowledge and only my knowledge and in time will be more detailed as I learn more. Thank you for understanding. Cheers.
Now, coming to the artisode. See, I did my undergrad in business; forget teaching about sweat equity I never heard this term ever in those four long years from anyone. Part of it is my mistake as well but still. Anyways, let’s FOCUS.
A lot of us are getting into starting our business and ventures and I reckon a person doing the same will agree to what’s next to come. See, when we indulge ourselves in start-up we have more time than money. Am I right or am I right? And thus a lot of us think that if we had some seed fund then it would be really really awesome while at the same time overlooking “SWEAT EQUITY”.
Sweat equity is contribution to a project or enterprise in the form of effort and toil. Let me explain through an example, you invested $100,000 in your startup and then sell a 25% stake to an angel investor for $500,000, gives the business a valuation of $2 million (i.e. $500,000/0.25), of which your share is $1.5 million, subtract your initial investment of $100,000, and your sweat equity is worth $1.4 million.
Sweat Equity is as valuable as cash equity. In the case of startups, sweat equity is typically rewarded through distributing stock or other types of equity. I am revisiting the lines from earlier section in this artisode where I mentioned about having more time than money. Sweat equity is ESSENTIAL when there is not much of cash. We all are trying to make more money aren’t we? And for doing so, we are leveraging our time to its fullest. But again, while in the desire for earning more; we often end up keeping more paid individuals and then dilute in it. You, I and everybody out there should be very careful about sweat equity. It should be measured and certain guidelines of this measurement are the long-term value of an individual’s efforts, the commitment of individuals and the value each adds to the overall goal of the business.
Again, an example of how sweat equity will pay you off. Two women start a computer consulting company. Rather than paying for advertising, they provide services for family and friends, make cold calls to potential clients, and work off referrals for building their client base. The women make themselves available at all times so they can help their clients with all their computer needs. After three years, the owners sell their business to a larger consulting company for $4 million. The owners built most of their company through sweat equity and made a very large profit because of it.
I hope I have been able to give you a glimpse of what sweat equity is. What do you think of sweat equity? Fruitful? or Not? Do tell and share with us. More is to come in the days for sure.
Till the next artisode, I bid you farewell my friend.
Written by: The Octopi