Should I take cash or equity in an NIL deal?

The 30-second answer

Take enough cash to cover taxes and your savings target first. Equity is a lottery ticket: value it at zero until proven otherwise, get the terms in writing, and never accept equity in place of money you actually need this year.

Cash pays taxes. Equity doesn't.

The first rule is mechanical, not philosophical: your tax reserve and your savings target have to be funded in cash, because the IRS does not accept startup shares. Whatever mix a brand proposes, the cash portion must cover roughly 30% for taxes plus the amount you actually planned to save this year. Equity only enters the conversation after that bar is cleared.

Value the equity at zero until proven otherwise

Most early-stage equity is worth nothing. Not because founders are dishonest, but because most young companies fail, and even in the ones that succeed, small stakes get diluted, restricted, or bought out cheap. So run the comparison twice:

• With the equity at zero: is the cash alone still a deal you'd take? If yes, the equity is a free lottery ticket. Take the ticket.
• Only good if the equity pays off: then you are not doing an NIL deal — you are making a venture investment with your time and your name. That deserves venture-level scrutiny.

If you take equity, take it properly

Equity that exists in a text message does not exist. At minimum you want real documents: what class of shares, what percentage on a fully diluted basis, what happens if the company is sold, what happens if they stop using you, and whether you can ever sell. A one-page "we'll give you 2%" promise is a red flag, not a term sheet.

And remember the tax wrinkle: depending on how it's structured, receiving equity can itself be taxable income in the year you receive it — meaning you could owe real cash taxes on paper shares you can't sell.

Why this matters

Equity deals are pitched hardest to athletes precisely because the headline sounds bigger than the cash the company has. Your NIL window is short, and every dollar of compensation you take in unproven shares is a dollar of your highest-earning years bet on someone else's startup.

What changes the answer

• Whether the cash portion alone covers your taxes and savings target for the year
• The stage and finances of the company — revenue and funding, or just a pitch deck
• Whether the equity terms are in real documents with a fully diluted percentage
• Whether receiving the equity triggers taxes now, before you can sell anything
• How much of your total NIL income this one deal represents

An example

Illustrative example, not a real client.

A brand offers a gymnast $20k cash plus "1% of the company", versus a competing all-cash offer of $35k. The company has no revenue and no outside funding. Valued honestly — equity at zero — the choice is $20k vs $35k, and the cash offer wins. If the equity company instead offered $30k plus the 1%, the ticket becomes nearly free, and taking it is reasonable as long as the paperwork is real and her tax bill is covered from the cash.

Common mistakes

• Accepting equity in place of cash you actually need this year
• Valuing equity at the founder's claimed valuation instead of at zero
• Taking equity with no documents, no percentage, and no idea what class of shares
• Not realizing the equity grant itself can be taxable income the year you get it
• Letting one exciting equity deal crowd out several boring cash deals

Questions to ask before you decide

• Does the cash portion alone cover my tax reserve and my savings target?
• What exact percentage do I own, fully diluted, and in what class of shares?
• What happens to my equity if the company is sold, raises money, or drops me?
• Do I owe taxes on this equity now, and if so, where does that cash come from?
• Would I take this deal if the equity turned out to be worth nothing?

What to do next

1. Set your cash floor first: taxes plus savings target. No deal goes below it.
2. Re-run every mixed offer with the equity valued at zero and compare cash to cash.
3. Demand real equity documents and have an attorney read them before signing.
4. Ask your CPA whether the grant is taxable on receipt and plan the cash for it.
5. Cap all equity and private deals combined at a small slice of your total NIL income.

When to bring in a pro

CPA: Before signing any equity component — to determine whether the grant is taxable now and what it does to your quarterly estimates.

Attorney: For the equity documents themselves: share class, dilution, transfer restrictions, and what happens on a sale or termination.

Advisor: When you're comparing mixed offers, or when equity deals start to become a meaningful share of your total compensation.

Pam's take

Take the ticket, never pay for the ticket. If the cash side of the deal stands on its own, equity is upside and I'm happy for you to have it. The moment you're accepting less cash than you need because the shares 'will be worth millions' — that's not an NIL deal anymore, that's a bet, and you're the one holding the risk.

Written by Pam Rodriguez, CFP®.

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