Mar 18, 2025
SWEAT EQUITY AS A MODEL
Sweat Equity is investing time, knowledge, and skills instead of monetary capital. In this model, shares or stock are acquired in exchange for tangible actions to increase the company's value – instead of financing, providing services, know-how, contacts, or building a business strategy comes into play.
Unlike classic collaboration with an agency, a company operating under Sweat Equity Marketing does not charge for its services but takes a share in the developing business. As a result, there is no initial cost for the entrepreneur, and the Sweat Equity investor is motivated for long-term involvement, as their compensation depends on the growth in the company's value.
It all boils down to a simple premise – the greater the value of the company, the greater the value of the shares. This is why Sweat Equity operates differently than traditional service providers – its interests are fully aligned with those of the company owner.
FORMS OF SWEAT EQUITY COLLABORATION
In the Sweat Equity model, settlement is based on two primary mechanisms:
Income from shares – remuneration from the company's profits, e.g., a percentage of net income.
Trading shares/stocks – selling owned assets for a profit after the increase in the company's value.
Both models operate simultaneously and do not exclude each other.
REVENUE SETTLEMENT
Sweat Equity can function on the basis of a fixed share in the company's income, meaning that a company investing in the firm can derive regular profits proportional to the shares held.
If Profitova Group holds 20% of shares in the company, then in the income model, it means that 20% of the company's income is passed on to the investor. This income is calculated based on the profit and loss account (P&L), and a key aspect is correctly determining what costs can be included in this calculation.
The most common settlement model in Profitova is based on official accounting data – income settlements are based on amounts reported within corporate income tax, which eliminates potential discrepancies concerning margins or non-standard operating costs.
Basic principles of the income model:
Fixed share in income – e.g., 10% or 20% of the company's monthly profit.
Settlement based on official accounting results (not based on revenue).
Minimization of financial instability risk resulting from costs exceeding revenues
LIQUIDATING ASSETS IN SWEAT EQUITY MARKETING
If a company has succeeded, shares or stocks can be monetized through their sale. In Profitova Group, the sales window typically opens after two years of collaboration.
Let's assume that Profitova holds 3% of shares in the company and supports its growth for two years. If the nominal value of the company was 5000 PLN, and after 24 months its market value rose to 150,000 PLN, then the value of Profitova's 3% shares increases from 150 PLN to 4500 PLN.
Possible forms of asset liquidation:
Sale of shares to the original owner – the most common form, where the owner of the company buys back shares at market valuation.
Sale to a private investor – shares can be sold to a business angel or VC
Profitova private funds – the possibility to resell assets to individual investors within Profitova's private investment funds, allowing for further expansion of the partner company in the capital market.
SHOULD SHARES OR STOCKS IN SWEAT EQUITY BE LIQUIDATED?
Not always. It all depends on the financial situation of the company and its market maturity.
In Profitova Group, the decision to sell shares is entirely flexible – the company is not obligated to resell them,
HOW TO EXIT A COMPANY IN WHICH YOU HAVE SHARES OR STOCKS?
The simplest way to exit an investment is to resell shares to the original owner.
Usually, this is the most natural form of exit, as the original owner of the company is familiar with its value, strategy, and future plans. Alternatively, if the company already has a stable market position, it is possible to sell shares to a new investor or fund.
In Profitova, the option to exit the company opens after 24 months of cooperation, but there is no need for immediate liquidation of assets.
CAN ALL SHARES BE LIQUIDATED?
Not every investment in Sweat Equity proves profitable. Some held shares may have only nominal value, meaning that their sale in the market may be difficult.
This happens when:
The company has not achieved the expected growth dynamics and there is no interest in its shares.
The company has gone bankrupt, and its assets have lost value.
SUMMARY – IS LIQUIDATING SHARES NECESSARY?
Liquidating shares in the Sweat Equity model is a natural investment process that is not always a necessity.
In Profitova Group, the priority is to maintain flexibility – we prefer that shares return to the original owner, but at the same time, we offer the option to liquidate them in the market within private funds.
