Report
How Much Equity Should You Give Your Startup’s Advisors?
A little over two years ago, Jim, a well known entrepreneur, began singing my praises all over social media. He didn’t have to do what he…
brett-j-fox.medium.com
It really depends on the value and involvement they are providing. Unfortunately there are so many so called business advisors who are just trying to get equity as easy as possible without providing value. But imagine your startup on the edge while a consultant with rock solid insights can save it! I think I would consider giving away equity if it would save me. But again, you never know if they are just scamming around. What I like to do is sweat equity for startups who made the same mistakes that i did.
Yep, totally agree. And you often don't know how valuable their insights will be or whether it will still be relevant if you pivot. I always suggest to founders that they offer to pay their advisors for a few hours / a few sessions. If the advisor makes a big difference, you click, and they actually do work for you, then bring them on board as an advisor for equity. Otherwise, just pay them out.
yeah that is the best thing to do definitely. most startups fail anyway so it would be a bad deal for the advisor to go for it without payment
None! We onboarded our angel investors as our advisors without any equity for advisory. When they invest money, they are also responsible for advising you.
If you give advisory equity, in the beginning, it might reflect negatively when you go on raising a subsequent round of funding in case you're building a VC-funded business.
It depends on the work the advisor is doing but on an average basis, the best practice is to give a sub 1% equity. It is good to add some vesting period if possible. Some people are also exploring phantomstocks for advisors.
Depending on how much the advisor contribute or how big his advice impact the startup.
As always, it depends. At minimum would be their expertise * time from their perspective. From your perspective, you just need to make sure the valuation creation (for you) is more than the price you paid.
zero
One thing that shouldn't be overlooked is how well the founding and management teams are going to work with and/or are likely to take on the advisor's advice. Like the article says:
"One of the big mistakes I see many entrepreneurs make is adding their advisory board to the team slide in their pitch deck. The reason it’s a mistake is savvy investors know that most advisors don’t contribute much to a startup."
If investors are looking at the quality of the team, having a redundant figure in the mix for the sake of it could be costing you equity and adding zero value.
Do many people go for the "If you're bringing on an advisor for their name value and nothing more" option? Given the difference in the percentage of equity you're giving up, it doesn't seem to make much sense. I can't see in what scenario you'd be more likely to benefit from an extra 0.5% equity at the expense of valuable advice.
Has anyone done this in practice? Given an advisor equity in exchange for the ability to use their name? I'd be curious to know what % of equity they offered.
Without giving too much detail away, I was an early investor with a startup within my space, my background was attractive to them (banking/sports) and so they offered me some anti-dilution upside + a few milestones to my equity. For them, 1. I invested 2. if I delivered on the milestones it would be great value builder 3. They could
use my position as accreditation on their initial raises and 4. The anti-dilution sweetened the deal for me. I invested at 0.5%, they offered me additional 0.5% milestones with anti-dilution on the upside to get me to 1% over the next 2 raises.