Meaning
Input of time or resources for which no specific price was set. An unpriced contribution occurs when a founder or early employee performs work or provides assets without a prior agreement on the hourly rate or the value of the goods. This is common in the early days of a startup when cash is scarce.
It creates a challenge for later equity distribution because the value of the input was never quantified.
Unvalued Input
Effort spent on coding, marketing or sales often goes without a formal salary in the beginning. When an unpriced contribution is made, the person doing the work is usually banking on a future reward in the form of equity. However, without a set price, it is difficult to determine exactly how many shares that work is worth.
This ambiguity is a frequent source of conflict during later negotiations.
Effort Measure
Tracking hours and output is the only way to retroactively value these inputs. An unpriced contribution should be documented even if no payment is immediately available. This record provides the data needed to make a fair allocation of shares when the company is finally valued.
Without this data, the distribution of rewards becomes a matter of opinion rather than fact.
Equity Claim
Right to a share of the company is the primary reason people make these contributions. A fair resolution of an unpriced contribution requires all parties to agree on a valuation for the past work. This often involves comparing the work to the market rate for a similar role.
Settling these claims is a critical step in cleaning up the cap table.