My partners and I at Race Capital had a great discussion this past week on the topic of startup advisory shares.
If you are about to bring on your first advisor for your company, how much equity should you give? Whenever you are trading equity for anything, you should always think about giving up X% equity, and would this person bring (100 - X)% outcome for the company?
Advisors are not usually compensated for the time they spend, rather, they are paid for results and the impact they can bring to the company. If he or she brings significant value and increases the outcome (revenue, customers, partnerships, key hires, investments) for the company, then you are net % ahead.
Carta did an interesting study on companies that have raised under $2 million in 2019. The most common arrangements are:
Advisor Restricted stock agreements (RSAs): From 0.2% to 1% of a company.
Advisor non-qualified stock options (NSOs): From 0.1% to 0.5% of a company
Before your first priced round, the advisory share should be RSAs. After the first priced round, the company gets a 409A and issues options from then onward. For vesting schedules, these options typically vest monthly over 1-2 years with no cliff or up to a 1-year cliff.
If someone helps your company succeed, it is only fair to share the success with them. It always goes a long way when you treat people right.