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Does anyone have guidelines for determining a reasonable number of shares to give to an advisor?

J
Written by Jasmine Sunga
Updated over 3 years ago

Creating your board of advisors:
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There is very little correlation between how much equity you give an advisor and what you get out of them. The two things which do correlate with whether you get a lot out of advisors are: If they invest their own money and If you are structured in creating a process around managing them.
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In terms of structuring arrangements, I would first see if they want to invest. I would take any amount of investment, since it's better than giving equity outright (if the investment is in the form of a friendly note).

If you do need / want to give them equity, my heuristic for an advisor is that the equity grant is the same as that of an individual contributor engineer. For a company that has raised less than $1.5 million, this is generally 0.2% of equity vesting over 4 years. HOWEVER, I would reduce the term (and thus size) of the grant. It's very tough to fire advisors. It's far easier to put them on a smaller vest schedule (e.g. 1 year, or even 6 months), and just NOT RENEW if things are not working out, but do renew if things are Working Out.

So for a 1 year advisor agreement, it would 0.05% equity (or 5 basis points). 3 month advisor agreement, it would be 0.0125% (or 1.25 basis points).

Most advisors will find these numbers low. I am conservative on the amounts I would give.

When you eventually raised a VC round and have a board, the board will give you a pool of equity the management team can use for advisors. Post Series A, this pool is normally 2% equity for ALL advisors. If you are pre-seed stage (e.g. if you have not raised at least $1.5m in capital), if I were on your board, I would give a pool of 5% equity total for all advisors. So you can decide within that how to divvy things up.

Founders Institute puts out these guidelines and a standard agreement for advisors. People often will point you to this but I find these numbers high. (Again, I would advise you to give as little equity as you can get away with -- since I don't find it highly correlated with results). While advisors will be of different types (e.g. some you just want primarily for branding and contacts; others for real operational help), the way I like to structure advisor arrangements is to first have them tell me what they can do for me. Then, I like to put my own milestones against what they say they can deliver in. And then structure the arrangement so that half of the equity I would allocate for them will vest with time. The other half vests upon accomplishing different milestones tied to goals they say they can accomplish. There are sample advisor agreements on the Google Drive folder here: http://bit.ly/1R9yGsv
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For other questions related to advisors, hiring and visas please refer to the Alchemist Resources Handbook.

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