I've met with some advisors and have proposed the idea of them joining my company advisory board. Compensation will be paid with a small amount of equity. But, questioning what is the right amount to offer?
Plan strategy development
Assist in recruiting
Introductions to investors
I've searched online and read some very interesting blogs. such as this one: http://fi.co/contents/206#
Im not sure if the 1% is to more or less what i should be offering to the advisor.
I have much respect for my advisors and hope to compensate them with the right % for their contributions.
*I currently own 100 shares in my company. Im going to change that amount to 10,000 shares.
We are a seed stage company but my advisors see great potential in my business and its growth.
Happy Holidays Everyone!!
Most advisors get between .25% to 1%.
1% assumed they are VERY important and will be active in either recruiting or raising capital (2 of the most important areas).
Advisors don't do it for the equity - at least they shouldn't - what they want more than anything is recognition from you publicly that they've been helpful to you + feedback loop (follow up) that you're listening and implementing their feedback.
Hope that helps.
I have used the founder institute recommendations in the past. Some people feel that it's not enough and some even seemed offended but most people that understand tech startups and that have advised or invested in them before should find them fair.
When you think about what most startups offer their full time employees, 0.2% - 1% by the 10th employee or so. 1% for a few hours a month is reasonable.
Also think about if you raise money, how much would that 1% be worth at the valuation you're thinking about? How much would it worth if you exit at your target exit value? Using $ figures I addition to the % helps the advisor get a better picture of what their getting for their time.
Protect your equity, once you give it out you can't get it back ( barring vesting of course ). It's limited and you're going to need it. Not saying you be greedy about it, just think very carefully how you use it.
I had a fantastic board of advisors with some heavy hitters. Unless you know for a fact that someone will be very involved or they plan to introduce you to a ton of clients, partners or investors, the standard is pretty much 0.5%.
The most important thing I learned was that the people who wanted more ended up being the least helpful. Two people on my BOA negotiated for 1% and, although one of them provided a catalog of content that was super valuable, he was difficult to get much out of after that and not more valuable than the many people who accepted 0.5%. My most valuable advisor would not accept equity until we basically forced him to.
Look for people who dive in and help without any incentive. They should be doing it because they like you and think your business is super interesting. If they are in it for the equity, run the other direction.
Should you pay an advisor board if they cannot establish the correlation between ethics and quality? I will say do not rush to increase your share’s amount. Although there may not be a logical relationship between ethics and quality, it might be argued that these two concepts should be mentioned together due to their common associations. These two concepts seem to overlap over a large area in terms of their word meanings. Business ethics, on the other hand, had been previously defined as applications of moral norms and rules in business life. In this context, it is possible to see the ethical aspect within the concept of quality when quality is regarded as raising and improving the quality of business processes, and as development of business processes and product features based on respect for domestic and foreign customers. Now, once you have understood this well, we can talk about the stock options you have. First option that you have is called Non-Qualified Stock Option or better known as NSO. A non-qualified stock option (NSO) is a type of employee stock option wherein you pay ordinary income tax on the difference between the grant price and the price at which you exercise the option. Second option you have is, Incentive Stock Option (ISO). An incentive stock option (ISO) is a company benefit that gives an employee the right to buy stock shares at a discounted price with the added allure of a tax break on the profit.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath