As more design firms partner with startups and accept equity in exchange for their skills, it’s time for a closer look at the pitfalls and the payoffs.
In 2010, Aapo Bovellan spent his days working in the London offices of Nokia, and his evenings and weekends offering branding expertise to a video game startup that gave him an opportunity to become an early shareholder.
Last year, that company, Supercell, raked in $2.3 billion in revenue on the strength of its first release, Clash of the Clans, and several spin-offs. Not long after completing that project, Bovellan and his wife teamed up with a colleague from Nokia to form Proxy Ventures. In the four years since, they’ve carved out brand identities for 14 startups, including game maker Another Place, Frill frozen smoothies, and apps like CurrencyFair and Peak—and they became early-stage investors in each of them. Clearly they’re doing something right: Proxy’s clients have seen average revenue growth of 202% year over year, and an average share price increase of 91%.As venture capitalists continue to throw startling amounts of money at nascent businesses, more design firms are offering work in exchange for equity, and when they hit the jackpot, the world hears all about it. But not long ago, an equity deal was considered a sucker’s bet, like buying a lottery ticket or purchasing a can of magical beans. Is it a short-lived trend destined to fizzle out or a promising new approach that’s here to stay?
“The model we work with is sexy and shiny, but too many people think that there are a couple of ways things can go wrong and a lot of ways things can go right, when in reality, it’s the opposite,” says Red Antler cofounder and CEO J.
B. Osborne, whose agency made a name for itself with the launch of mattress brand Casper. “And most of those factors are out of your control—someone goes to market faster, someone raises more money, the founders fight and break up the business, or they overhire. It’s an incredibly risky investment with only a small percentage of deals that are likely to pan out, so you have to be able to make quality bets and play the game enough times to make it worthwhile.”Perhaps it’s smarter to say that taking an equity stake is more like playing poker than playing the lottery—an intelligent player who’s seen thousands of hands will always have the advantage. But for Osborne, it was never about the money.
“I’ve always been fascinated with the business model for creative services,” he says. “It never really made sense to me why someone should pay by the hour for something that could be incredibly valuable in the long run, so I was curious about how to structure things in a way that was aligned more with value creation than time spent.” When colleagues in the design industry heard he was accepting equity along with a portion paid in cash, they told him he was crazy. But as someone who doesn’t like being told what to do, those comments just added fuel to the fire.
“The vision was always to partner with our clients as much as possible, where our success comes from their success,” he says. “If we do good work, their business grows and if we create something that’s truly valuable, it builds our reputation, and we get piece of the upside.” Case and point: Red Antler’s first project was to establish the branding and identity work for Behance and 99U—launched by Osborne’s old college friend, Scott Belsky—in exchange for equity. When Belsky sold the company to Adobe in 2012, the small agency saw a nice payday.
So, if you’re considering adapting an equity model, what are the most important to ask of potential clients?
“I ask a lot of entrepreneurs to talk about analogues,” says Alain Sylvain, founder and CEO of New York-based Sylvain Labs. “If I asked them to tell me about companies in other industries that they look up to, they’ll usually say Tesla or Patagonia—you can learn a lot about how they view creative work through that response. I’ll also ask what they know about manufacturing and whether they have an in-house…
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