Skip to main content
Also known as: founder equity, work-for-equity

Sweat Equity

FoundationalOperationsLegal

Definition

Sweat Equity: Sweat equity is ownership earned through work rather than cash investment. Founders earn sweat equity by building the company, and advisors or contractors sometimes accept equity in lieu of cash compensation.

Example Usage

“As a technical co-founder, my 40% stake represents pure sweat equity from building the product.”

Common Misconceptions

Sweat equity is less valuable than cash equity. The value depends entirely on company outcomes.
Sweat equity is tax-free. It can have tax implications, especially if received at low valuations.
Only founders get sweat equity. Advisors and early employees often receive equity for services.

Explore More Resources

Browse Tools

Discover 100+ vetted tools for every stage of your startup journey

Explore all tools

Build Your Stack

Take our personalized quiz to get tool recommendations for your startup

Start the checklist

Recommended Reading

Curated books to help you learn, grow, and succeed as a founder

View book recommendations

Listen & Learn

Top podcasts covering startups, product, growth, and entrepreneurship

Discover podcasts

Help us improve this definition

See something that could be clearer or more accurate? Let us know.

Help us improve this page

Found an error or have a suggestion? We'd love to hear from you.