Many young companies and startups with exciting tech ideas have a common hurdle to overcome: financing the technical design & implementation. Web development projects can quickly become costly, and investor funds are difficult to acquire, especially in the initial phase. This is where Code for Equity (CfE) comes into play, an innovative financing model that offers great potential, especially for new and complex software projects.
What is code for equity?
Literally translated, code for equity means “code for company shares”. The concept behind this is as follows: instead of paying the development costs in cash, the app agency receives a share in the client’s company in return. The agency therefore contributes its technical expertise and manpower and becomes a co-partner in return.
How does Code for Equity work?
Suppose you have a brilliant idea for a new software solution. But you don’t have the budget to commission the development. In most cases, with the business plan in hand, you will now start looking for investors.
With Code for Equity, you kill two birds with one stone: you contact a software agency and pitch your project. If the agency is convinced of the potential of your idea, it offers to take over the development in return for shares in the company. On the one hand, you have secured technical expertise and the agency (= investor) has also secured the financing.
In concrete terms, the agency’s share in your company is contractually agreed in advance. This value is usually based on the scope of the development work and the estimated value of your company. It is therefore not possible to make any general statements here without having thoroughly examined the project in advance.
Advantages of Code for Equity
With CfE, costs no longer play a role for founders and companies. It doesn’t bring peace and quiet to your business development and you can concentrate fully on your product. But that’s not the only reason why this type of financing is so interesting. All the advantages at a glance:
- Budget-friendly financing: Of course, you don’t have to raise high development costs.
- Faster market launch: Thanks to the agency’s advance work and involvement, development can start faster right from the start.
- Strong partner on board: The agency has a vested interest in the success of your company and contributes valuable tech expertise.
- Long-term business relationship: The involvement creates a close bond between the parties, as both are (ideally) pulling in the same direction.
Is CfE suitable for my project?
This type of financing is particularly suitable for innovative start-ups with limited financial resources and a promising business idea.
However, established companies can also benefit from this model if they want to set up a new digital division, for example. The decisive factor is that your project has long-term growth potential and that web, software and/or app development is an essential component.
Even if code for equity is still rather less popular, especially in the DACH region, it can be a real game changer for projects and effectively and purposefully get the software horsepower on the road.
What should you look out for with Code for Equity?
Before you decide on Code for Equity, you should consider a few points:
- Choosing the right agency: Can the agency meet our requirements? Does it have the technical expertise we need for implementation?
- Drafting the contract: The project should be fair for all parties. Clear framework conditions should therefore be created and set out in the contract.
- Transparency of the evaluation: A fair and comprehensible evaluation of your company is at least as important. As already mentioned, the overall scope of the project also plays a role here.
- Exit strategy: It should be clarified in advance how and when the agency can sell its shares in the company.
Conclusion: Realizing innovative ideas without headaches
Code for Equity offers an innovative and forward-looking way to finance web development projects. Especially for young companies with a limited budget, this model can pave the way for a quick market entry. Weigh up the pros and cons carefully and, if in doubt, seek advice from experts.
We are one of the few software agencies in Germany to offer CfE. Are you interested in this type of financing? Get in touch with us and we’ll see how and whether we can support you.
