Startup Sunday: My thoughts on startup advisors and how much equity to give them

Startup Advisors

One of the questions we had in the early days of our startup was, first – should we bring on advisors? And second, if we do, how much equity should we give them? Like most things in life, we learned by doing and made some mistakes along the way. Going through Techstars was incredibly valuable because it allowed us to talk with other founders, all going through the same experience and often asking the same questions.

The first lesson I learned is that, yes, advisors can be incredibly helpful but it isn’t a title you just extend to anyone that helps you out once or twice. Instead, an advisor should be someone that you think has some expertise, maybe it’s in sales in the market you’re in, maybe it’s with hiring your first few developers. Whatever it is, make sure you can easily say – we brought on advisor ________ because she has expertise in________ which is valuable for our startup.

It can be all too easy to hand out advisor roles to everyone who helps you early on, you figure – it looks good on the team slide and they’ve been helpful so why not! The challenge here is that you need to be incredibly diligent with your time as a founder. Honestly, there just aren’t enough hours in the day to do everything you need to do. This means that you should only be adding on advisors when you see a clear need, somewhere they can fill in and help out right away, and then set expectations for what you’d like them to do.

One of our most helpful advisors to-date has been someone that we knew had experience selling software like ours, into the market we sell into. Not only were they able to provide us with very useful tips when it came to structuring our sales process, they also made intros and helped us land some of our earliest clients. We were clear from the beginning on what we were looking for, they delivered, and it made a huge difference for us.

Conversely. Early on we brought on an advisor that our lawyer had recommended. We didn’t know the person but had lunch with him, he bragged about how connected and successful he was, and so we made him an advisor. He told us that he could introduce us to tons of potential customers and help us navigate the complex and often never-ended Enterprise sales cycle. In the end, he wasn’t able to deliver and we wasted many a phone call and coffee meeting with someone that turned out to be just really good at walking the walk.

The point is – advisors can be great, just do your homework and make sure you’re bringing on someone that can truly add value to your company. Avoid the common early-founder tendency to bring on an advisor that just looks good on a slide – trust me on that one.

Now for the burning question that we had in the early days – how much equity should you give an advisor? 

We found a number of different articles online and a pretty wide range going from 0.25% all the way up to 2%. So we decided to ask other founders, both in Techstars and that we knew through our own network. We got a much better range.

The typical equity you’ll give an advisor is 0.25% – 0.5% and there usually isn’t a vesting cliff, but there is a vesting period, it’s just typically two or three years rather than the four years you see with employees.

Did you have a great advisor that really came through for you? I want to hear from you, comment and let your voice be heard!

Please note: it may take up to 24-hours to approve your comment. If you don't see your comment right-away, don't worry!

{ 0 comments… add one }

Leave a Comment