Why do founders bring on advisors?
Advisors are a cost-effective way for founders to lean on subject matter experts who can support their business through early stage growth. If a founder has a need for specific expertise but cannot afford a full-time hire, an advisory relationship is worth considering as advisors will only give some of their time due to other commitments.
When do you bring up the conversation of compensation?
Raise compensation when you are formalizing specific expectations of the relationship and how you would like to engage (ex. number of hours/conversations per month). However before you bring up the topic of compensation, it is important to ensure that both parties are committed to the relationship and the success of the organization.
What are the different types of compensation for an Advisor?
Founders should think about what they can afford as a business and the value that the individual may bring. Also, the advisor’s expectations and time commitment should be considered to determine what is fair. There are a variety of scenarios when it comes to compensation. The three main possibilities include:
- Equity
- Cash (this would be more like a consultant)
- Combination of both equity and cash
Is there a specific amount of equity Advisors should get per time spent? (i.e., if I spend an hour a week with the team, how much equity does that get me?)
All cap tables are company-specific, but we would recommend a commitment of at least one hour per month, based on a four year vesting schedule throughout the duration of the working relationship. If you need a more frequent commitment, please consider that as well. Please see below based on company stage:
Stage | Advisor Equity Grant |
Pre-Seed | 0.20% - 0.80% |
Seed | 0.25% - 1% |
Series A | 0.25% - 1% |
What does an advisor agreement entail?
A startup advisor agreement formalizes the specifics of the relationship including the number of hours of work and the form and frequency of compensation. Any equity grants will need to be issued with a clear number of options and a predetermined vesting schedule. You can view an example agreement here.