This is genius. Great idea! We took contract work to pay for an employee at my last startup and it worked out pretty well (until they stopped paying). He would work for them ~2 days a week, and that would cover his salary for the whole week. Basically, we got a free employee 3 days a week + his input and expertise.

Although this approach is a little bit distracting, it can be much less distracting that raising capital and dealing with bad investors. I would recommend it to any early stage startup.