Adaptive Path, the cutting-edge Internet consulting and design firm that has helped define Web 2.0, said today it has agreed to provide Sierra Ventures' portfolio companies with consulting services in exchange for equity. The two firms have not consummated any deals yet but anticipate that Adaptive Path will work with three to four of Sierra's portfolio companies per year.

For Adaptive Path, it provides them with the upside that they lack working on an hourly basis. After watching former clients such as the Flickr founders go on to riches via a sale to Yahoo!, Adaptive Path is willing to take the risk that equity provides in exchange for the potential reward. It also builds upon the entrepreneurial experience they gained building blog analytic tool Measure Map and then selling it to Google earlier this month.

For Sierra Ventures, the deal provides them with a competitive advantage over other venture capitalists while courting consumer Internet startups. Sierra has mostly concentrated on enterprise software and electronics since its founding in 1983 and would find the consumer Internet market a hard nut to crack on their own without any track record.

What does this partnership mean?
1) The market for investment into quality consumer Internet startups is so competitive that venture capital firms are looking for any edge they can get.
2) Professional service firms are optimistic enough about the investment climate that they are willing to take equity rather than cash as payment.

Skeptics might note that the willingness of a professional services firm to take equity rather than cash as payment is another sign of a frothy Internet market. However, Lane Becker, director of new ventures at Adaptive Path, says the partnership is a managed risk that the San Francisco-based firm is not reliant on.

It will be worth watching whether other services firms such as law firms, consulting firms, public relations firms and business development firms follow suit. As long as accepting equity for work is not a bet on the company compensation strategy, then it makes sense. At least for the service provider.

It will also be worth watching whether any startups suddenly flush with venture capital money will agree to give up their precious stock in exchange for advice when they could just pay for it with someone else's money. — Joshua Jaffe