Paying people in equity is one of the hardest decisions early-stage founders face. You want to attract talent, advisors, and early supporters, but you’re constantly asking yourself the same question: “If I give away equity now, will I regret it later?”
In a recent FlexUp podcast episode, Piyush sat down with Fabrizio, founder and CEO of FlexUp, to unpack exactly this problem—and to explain a practical way startups can reward contributors fairly without losing control of their company.
Why Equity Dilution Feels So Risky for Founders
Most startups use future-profit or future-valuation logic when giving equity. Founders are encouraged to imagine what the company might be worth one day, assign a valuation based on projections, and then give away small percentages accordingly.
In practice, this creates two major problems.
First, early valuations are mostly guesswork. Pre-revenue startups don’t yet have traction, cash flow, or proof, so valuations are driven by assumptions rather than facts. Second, founders end up under-rewarding early contributors. If you claim a high valuation too early, the equity you give your first hires or advisors often feels symbolic rather than fair.
FlexUp starts from a different question: what value has actually been created so far?
Cost-Based Valuation: Valuing What Exists, Not What Might Exist
Instead of valuing a startup based on hypothetical future profits, FlexUp uses cost-based valuation in the early stages.
That means the value of the company is based on:
- The work done so far
- The money invested
- The services contributed
- The time and risk taken by contributors
If a founder works full-time for six months at a fair market salary, that contribution has a measurable value. If a developer accepts partial payment or no cash at all, that is also a measurable investment. FlexUp treats all of these as real inputs into the company’s value.
This approach makes equity distribution feel immediately fair. Everyone—founders included—earns equity under the same logic, based on contribution and risk, not titles.
But there’s an obvious concern.
If the valuation starts low, doesn’t that mean founders give away too much equity too early?
That’s where the second mechanism comes in.
Redeemable Equity: Giving Generously Without Losing Control
FlexUp introduces the concept of redeemable equity, which fundamentally changes how dilution works.
When equity is redeemable, the company has the option to buy it back later if the business becomes successful and generates sufficient cash. This is not a personal buyback by the founder—it’s a company decision, funded by company profits.
In simple terms:
- Early contributors take more risk, so they receive more equity
- If the startup succeeds, they are rewarded at a premium
- If the company wants to reduce dilution later, it can buy that equity back
This removes the founder’s biggest fear: giving away equity too early with no way back.
Founders can now reward early team members fairly and preserve long-term control if the business performs well.
How Credits and Tokens Make This Work in Practice
FlexUp structures equity using two components: credits and tokens.
Credits represent deferred compensation or invested cash. They behave like a shareholder loan and can be repaid when the company has excess cash.
Tokens represent risk and upside. The more risk someone takes—by deferring pay or investing early—the more tokens they receive. Tokens grow in value over time and entitle holders to profit distributions and voting rights.
When equity is redeemable, tokens include a predefined buyback price that increases over time. If the company chooses to redeem them, contributors receive a strong return on their risk. If not, they continue participating in long-term upside.
This balance is what makes the system work for everyone.
A Real Startup Example: Paying the Team Without Over-Diluting
In the podcast, Fabrizio shares the example of True Local Heroes, a US-based marketplace startup.
Instead of raising a large funding round, the founder raised limited cash and paid part of the team in equity using FlexUp. Contributors were rewarded based on actual work and risk, not inflated projections. When dilution became a concern, the redeemable option ensured that future success could rebalance ownership without penalising early contributors.
The result was lower burn, higher motivation, and a successful product launch—without locking the founder into permanent over-dilution.
What This Means for Startup Founders
FlexUp doesn’t ask founders to gamble on aggressive valuations or delay fair rewards. It offers a structured way to:
- Pay people in equity transparently
- Reward early contributors fairly
- Avoid irreversible dilution
- Keep founder control flexible over time
It’s not about replacing existing systems. It’s about giving founders better tools for the messy early stages of building a startup.
As Concluded in the episode, FlexUp gives founders a new way to think about equity—not as something you lose once, but as something you can manage responsibly as your company grows.
Image generated and content edited by ChatGPT.
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How to give away equity without being afraid of dilution