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Cash vs equity returns 101

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@kodoninja verified by kodokitty

Posted: 2 years ago
| money

Heard the song Apeshit by The Carters? Well, there’s a  lyric that sticks out to me. It goes "Gimme my check, put some respek on my check Or pay me in equity (Pay me in equity) Watch me reverse out of debt (Skrrt)". A simple 3 part lyric that packs a punch. Ok. So, let us unpack this a bit. Pay me in cash with the amount I’m worth, or pay me in equity that’ll solve every finical implication I’ll ever have. The Equity is having shares in businesses with which she partly or fully owns, sponsors, ordeals. Similar to Sean Parker with Facebook, Curtis Jackson with Vitamin Water, or Jay-Z with Tidal. The list is endless. Nonetheless as opposed to being paid in cash Equity in the right deals can catapult you into ultra-rich status.


Let us look at Two forms of payment in the eyes of an engineer and developer.


  1. Cash
  2. Equity


Cash

Cash is cool it’s fun, and it is reliable and exact. This can be the result of payments made through royalties and can be exchanged for equity in various investments. However, there are so many drawbacks to cash ranging from inflation to taxes. Cash in my understanding is best suited to be working for you. I do not carry literal cash on hand and honestly, I haven't seen it in quite some time. Cash is held in mostly bonds, stock, c-corps, and a few tangible possessions. So when deals are made I try to get equity, even if the business doesn’t have a good track record. 


Cash in deals can be used to fund (flaunt) your lifestyle or be used for reinvestment into other streams of investment income. This form of payment may be more beneficial to you depending on your situation throughout life. If you are unsure of the business prospects you can liquidate your shares into much-needed cash. However, there are many horror stories of people like Ronald Wayne who co-founded Apple With Steve Jobs and Steve Wozniak. He later sold his 10% stake in Apple back to them for $800. Today those shares would be worth over $200 billion


This logic can apply to almost everything. Would you rather go on a fancy overseas trip now or invest that money today. Would you rather liquidate your Tesla shares to buy a Tesla or ride the wave a bit longer? Or perhaps liquidate to reinvest in other companies. Persons have kicked themselves over and over again after realizing they missed out on so much money to indulge in materialism, impressing people who are here today and gone when the money goes.


Equity

Equtiy is getting paid in future earnings that your share holds over time. This is the ownership of a company that you the shareholder owns. Now, this can be Common stock, retained earnings, share premium, and the preferred stock. So you’ll be either getting dividends or capital gains in return


When things I create are sold it's done so under an LLC or c-corp name. Typically it's a set number in cash, an exchange in common stock. Or equity in shares of their business, with royalties collected over time. Occasionally a written agreement to get shares (common stock) when made available. These types of deals aren't that rare. Depending on who you are doing business with, this can be seen as a risk for both sides. Especially as a licensor obtaining shares in a company for your work or product. You need to make sure the shares you get will be worth the work you put in and will be worth anything over time. If you are anything like me you are not into materialism. You're getting equity to build your portfolio and legacy exponentially over time. Those shares are a representation of your net worth and valuable cash-producing assets.


For instance, doing business with a startup may pose a risk to you and your business because their valuation may not be established. Meaning a single share could be worth $1.00 or $100.00 over the next years and so on. It could be a crazy payout netting you thousands to millions in your portfolio or netting you nothing if their shares or worth nothing. On the Investee side, that product they exchanged $500k and 200k shares for may not be worth anything to the business like Myspace, Theranos, Friendster, Blogger, etc. turned out to be. 


Remember when George Lucas sold Lucasfilm to the Walt Disney Company for 4 BILLION back on 10/30/2012? Right, We all do. I believe this is one of the greatest business deals of all time., I’ll explain. When George Lucas and Disney made the deal it was settled for what we believe to have been a 55/45 percent split of cash and equity.  Which is approximately $2.21 billion in cash and 37,076,679 shares of the Walt Disney Company. On 10/29/2012 (DIS) was trading at $51.24 a share. So his shares were worth 1,899,809,031.96.


Now here is why I love split sales whenever I sell my work. What makes that acquisition so genius for Mr. Lucas is that today (DIS) is worth $130.47 a share. Making that 45% stock acquisition worth 4,837,394,309.13. Insane. Disney only seems to be getting better and bigger so assuming he hasn’t touched his shares money from that single date on 10/30/2012 is steadily ballooning his portfolio. Additionally (DIS) pays dividends. And if you are a holder of 37Million shares you can expect to make 64 million a year. Nearly 450 million to date in dividends. Which all can be reinvested to buy even more (DIS) or any other stock he chooses. Again, Inane.

 


Conclusion 

Collecting royalty paychecks for “life” every month, or quarter, for no additional work, may sound appealing However it may only be accessible to those who’ll put in the work to do so. For instance, if you are a musician, making music that’s enjoyed. You’ll most likely get the option to negotiate payment options. On the topic of music and royalties, this gets a bit complex for (artist) performers, songwriters, masters, producers, and so on. Thus I've linked a few good articles that’ll help you further understand.


However from the eyes of a developer if you are good at creating platforms like YouTube, Twitter, Snapchat, or this very platform https://www.kodoninja.com/. If sold you can negotiate royalties for its acquisition, or one flat crazy buyout in the tens of millions, or possibly Billions. Under my company Aviyon I am to create several platforms to be rented, sold, and acquired. You can solve problems for many people gaining popularity then eventually selling segments, promotion deals, etc while retaining 100% equity. Just like Ye (Kanye West) was able to do with YEEZY. Or perhaps sell your entire company, apps, websites, etc that you create. Or more significantly make split deals like George Lucas to be paid in equity as well.


The topic of equity and cash can be so vast but will never appeal to everyone, thus I’ve linked many articles that may help you make money from your talents. Whether it may be music or running YouTube channels.

Recommended Free Book links
References::
https://www.wallstreetmojo.com/equity-vs-royalty/
https://dorksideoftheforce.com/2021/03/12/george-lucas-disney-acquisition-10-billion/
https://finance.yahoo.com/quote/DIS/history?period1=978192000&period2=1451491200&interval=1wk&filter=history&frequency=1wkIf
https://www.digitalmusicnews.com/2016/02/15/how-to-get-all-the-royalties-you-never-knew-existed/
https://entrepreneur-360.com/types-of-royalties-3786
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