Sweat equity refers to the non-monetary investment that individuals make in a business, typically through their time, effort, and expertise. This concept is crucial in startups and businesses where financial resources are often limited but human capital is abundant.
For instance, when Dropbox launched, its founders, Drew Houston and Arash Ferdowsi, initially did not have significant financial resources but invested considerable time and effort into developing the product.
The founders’ contributions were valued through the equity they retained, which reflected the significant time and effort invested in the early stages of the company. This sweat equity was critical in securing initial funding and achieving the company's growth.
Here’s a breakdown of how sweat equity works, its benefits, and considerations.
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