I have software product I've been developing for a few years that is just about at the beta stage. I am still working full time as a IT consultant and working on the product in the evening and the weekends, however since last month I do have developer working on the project full time, and I am currently paying him out of my own pocket.
I can't continue paying him myself indefinitely and I have been approached by a private investor who wants to invest in the company in return for equity. Once the current quarter ends I'm going to need 80k in order to pay the developer for the following year and the investor is prepared to cover that cost. However, he wants to deliver the money in lumps, every quarter, i.e give me the money I need to pay Q1 wages at the beginning of Q1 and Q2 wages at the beginning of Q2. To me, this doesn't sound like a model that fits with equity at all. It seems clear(to me at least, maybe I'm wrong tho) that he's just trying to limit his risk and I feel I should not give equity in this case. I'm not sure, however, how to reward his input and would greatly appreciate some advice
If he wants to limit his risk by paying in drip, then he should also be willing to lower his equity stake: lower risk = lower reward. So for instance, you could counter his offer like this: "At the moment I need X to build my business. If you give me X in one lump sum then I'll give you Y% equity in the company and if you want to give me X in 4 installments the I'll give you Y-n% equity". It's sort of a pay-to-play deal. That's just an idea and you have to decide how you want the deal to work out. If you agree to receive funding quarterly then that potentially sets up a situation where in Qn, you might not get the funding you need and then you'll be in a tough spot.
One thing's for sure, early-stage investor(s) will partly determine the business outcome of your venture; take a look here: Losing Controlling Interest in a company, can that be bad? Good luck.