Why Equity Deals Are Expensive
You need a team to build your AI product. An agency quotes $500K. You don't have the cash, so they offer 20% equity instead.
Sounds fair, right?
Here's the math: If your product hits $2M in annual revenue (modest for a good product), that 20% stake is worth $400K per year. Forever. Over 10 years, you've paid $4M for a $500K build.
Plus you've lost control of your cap table.
There's a better way.
How Revenue-Sharing Actually Works
Your partner gets 15-30% of revenue until a cap or time limit is reached. That's it.
Why it's smarter:
You keep control
Equity means giving up voting rights, board seats, decision-making power. Revenue-sharing keeps your cap table clean. You own 100%. You make all strategic decisions.
Incentives align perfectly
With equity, the dev team gets paid whether you succeed or fail. With revenue-sharing, they only win if you win. True partnership.
You can buy out later
Most deals include a buyout clause. Once profitable, negotiate a one-time payment to end the split. With equity, you're stuck forever (or face expensive buybacks).
Zero upfront cost
No seed round. No savings. No debt. The product gets built, launched, and scaled without you writing a check.
Real Example: How This Played Out
PartnerMind is an AI sales agent that reactivates dormant leads. The founder had a concept but no team and no budget.
Instead of raising $750K (and diluting 15-20%), we structured a revenue-sharing deal:
- 25% revenue share for 3 years
- $1M cap—after we collect $1M, the split ends
- Buyout option at 2x remaining value
The outcome: Launched in 8 weeks. Generated $180K Year 1. Founder still owns 100%. We've collected $45K so far—far less than a $750K equity raise would have cost.
When Does This Make Sense?
Revenue-sharing isn't for everyone. Here's when it works:
✅ Great fit:
- Clear path to revenue (B2B SaaS, marketplace, service business)
- You want to preserve control and avoid dilution
- You need a full co-founding team (product, engineering, GTM)
- You'll share upside for zero upfront cost
❌ Poor fit:
- Moonshot with no revenue for 5+ years
- Need massive capital for hardware, inventory, infrastructure
- Planning a quick exit (acquisition within 12-18 months)
Why Venture Studios Make This Work
Revenue-sharing only works if your partner is invested in your success. That's the venture studio model.
Unlike a dev shop that builds and disappears, we act as your co-founding team. We don't just write code:
- Validate the market before building anything
- Design product strategy from real customer feedback
- Build and launch MVP in 8-14 weeks
- Drive go-to-market (sales, marketing, customer success)
- Scale operations as revenue grows
We're not a vendor. We're your partner. We only make money when you make money.
The Math: Revenue-Sharing vs. Equity
Let's compare two scenarios for a $500K product build:
| Metric | 20% Equity | 25% Revenue Share |
|---|---|---|
| Upfront Cost | $0 | $0 |
| Year 1 Revenue ($500K) | Partner gets $100K | Partner gets $125K |
| Year 5 Revenue ($3M) | Partner gets $600K/year | Partner gets $0 (capped at $1M) |
| 10-Year Total | $4M+ (forever) | $1M (then ends) |
| Founder Ownership | 80% | 100% |
| Control | Shared | Full |
The numbers speak for themselves. Revenue-sharing is cheaper, cleaner, and keeps you in control.
How to Structure the Deal
Key terms to negotiate:
- Revenue share: Typically 15-30% depending on partner involvement
- Cap: Total amount partner collects before split ends (e.g., $1M)
- Time limit: Maximum duration (e.g., 5 years)
- Buyout clause: Option to end split early with lump-sum payment
- Revenue definition: Gross, net, or profit? Be specific.
The Bottom Line
Equity is expensive. Revenue-sharing is smart.
If you're building an AI product and want to preserve control, align incentives, and avoid dilution, the venture studio model with revenue-sharing is the way.
We've done this dozens of times. We know what works.
Key Takeaways
- Revenue-sharing allows you to build products with $0 upfront cost while keeping 100% equity and full control
- Typical structure: 15-30% revenue share capped at 2-4x development cost, then agreement ends
- Unlike equity dilution which lasts forever, revenue-sharing is temporary and predictable
- Venture studios using revenue-sharing are incentivized to drive your success, not just deliver code
- Best for companies with proven demand but limited capital, or founders who want to preserve equity for future fundraising
People Also Ask
- • How does revenue-sharing work for AI product development?
- • What percentage of revenue should I share with a development partner?
- • Is revenue-sharing better than giving up equity?
- • What happens if my product doesn't generate revenue?
- • Can I buy out a revenue-sharing agreement early?
Frequently Asked Questions
How does revenue-sharing work for product development?
In a revenue-sharing model, the development partner builds your product with zero upfront cost. Instead of charging fees or taking equity, they receive a percentage (typically 15-30%) of your revenue until a predetermined cap is reached (usually 2-4x the development cost). Once the cap is hit, the revenue share ends and you keep 100% of future revenue. You retain full ownership and control throughout.
What percentage of revenue should I share?
Typical revenue shares range from 15-30% depending on the partner's level of involvement. Pure development work: 15-20%. Development + go-to-market support: 20-25%. Full venture studio partnership (strategy, build, launch, scale): 25-30%. The percentage should reflect the value and risk the partner is taking on.
Is revenue-sharing better than giving up equity?
For most founders, yes. Revenue-sharing is temporary (ends when cap is reached), predictable (fixed percentage), and preserves 100% ownership. Equity dilution is permanent, grows more expensive as your company scales, and reduces your control. If you plan to raise VC funding later, keeping equity clean is crucial. Revenue-sharing is typically 60-80% cheaper over 10 years.
What happens if my product doesn't generate revenue?
If the product generates no revenue, the development partner receives nothing. This is why revenue-sharing only works with partners who are genuinely invested in your success (like venture studios). Traditional agencies won't accept this risk because they're not equipped to drive go-to-market. The shared risk is actually a feature—it ensures your partner is motivated to help you succeed, not just deliver code.
Can I buy out a revenue-sharing agreement early?
Yes, most revenue-sharing agreements include a buyout clause that lets you end the split early with a lump-sum payment (typically the remaining amount to reach the cap, sometimes with a discount). This is useful if you raise funding or want to clean up your cap table before an acquisition. Always negotiate buyout terms upfront.
How is 'revenue' defined in these agreements?
This must be explicitly defined in the contract. Common definitions: 1) Gross revenue (total sales before any deductions), 2) Net revenue (after refunds, chargebacks, sales tax), 3) Profit (after operating costs). Most agreements use net revenue to avoid disputes. Be specific about what counts (recurring subscriptions, one-time sales, upsells) and what doesn't (investment capital, loans).