What’s Normal in Silicon Valley for Startup Advisor Equity?
Advisor compensation questions are common for startups. Here are some considerations:
1. Advisor Experience and Influence.
2. Stage of Startup.
3. Expected Contributions.
4. Vesting Period.
5. Cash, Equity or Both.
Some rules of thumb charts that Founder Institute and Founder Dating put together for equity grants are below:
Be careful of rules of thumb, however. As Travis Kalanick, CEO of Uber states:
For any entrepreneur that is looking for real value and involvement from their advisors, the numbers above just don’t cut it.
He points out that:
If your advisor is truly valuable, then you’re gonna have to step up what you provide in equity in order to get real involvement, otherwise you’ll be left with a potentially valuable advisor who gives you no time, or a useless advisor who gives you time you don’t want or need.
His suggestion is to first figure out what value this person would bring as a full-time contributor, then multiply that figure by the fraction of full-time expected of the person to be involved.
Another factor discussed in Startups — Allocating Founder Equity, is to consider potential future dilution and various exit scenarios. Vesting periods also differ in advisor grants. Often times shorter vest durations are more applicable for early stage startups.
Likewise, the specific details matter. For example,
- A founder-executive of a 5+year and $500+M startup will likely not be that hands on because they are busy. On the other hand, he/she can help in many opportunistic ways when value is needed at just the right times. As a founder, knowing when to bring on and properly incentivize such a strategic advisor is critical.
- Startup advisors who help with early strategy, communication, positioning, pitch deck, funding, partnerships, advisory and recruiting are more influential at the seed stage. This is a role that accelerators have taken on for early stage startups in return for equity. Often times, as with accelerators, such advisors are naturally limited in scaling long-term — still their contributions at the time can be (and for valuable advisors need, and are expected to be) significant.
- Technical Advisory and Customer Advisory Boards (Andreessen Horowitz a16z Podcast: Building the Right Technical Advisory Board) have group roles, with strategically different expectations.
For startups and advisors, there is also another important consideration…
Differences in structuring equity compensation packages for advisors often result in upside or cash outflow differences in taxes and exercise amounts (even with the same share amounts).
Many startups and advisors don’t realize that there are structures that can optimize incentives.
Less dilution for the startup, and more upside for the advisor benefits both sides. For every startup stage, there are proven ways to optimize these outcomes depending on how advisor packages are structured.
About Me: I am a lawyer and business advisor. I help tech growth startups close business development, revenue and partnership deals. I also help early stage startups get funded and grow as advisor, angel investor, and connector.
How exactly do I help?
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Their current solution is to wing it, or get caught in legal churn. Meanwhile it’s easy for someone from the business development team to contact me to communicate an issue, answer questions, make a few adjustments to reduce risk, increase upside, and get the deal signed. See… SiliconValleyCounsel.com — Why Contracts Kill Your Business Development Deals
Startup Founders need to be relentlessly resourceful. I am a startup founder, and have personally gone through many of the early founder pain points myself or with other founders. At Silicon Valley Counsel, I have developed helpful proven processes that save time and money in a startup’s first 18+ months. I also help startup founders with legal, financing, commercial matters, pitch decks and introductions. See… SiliconValleyCounsel.com — Nailing Minimum Viable Product
Investors, Advisors, and Freelancers are some of the best resources startup founders can utilize. I advise startups and often try to connect them with additional valuable connections. I am also developing an online resource for investors, advisors and freelancers to connect with startups, so connect with me via Linkedin if interested.
More Resources — Linkedin Posts:
Startups — Crowdfunding Regulations
