I have been sharing the below with folks via email and privately, but realized I should do so publicly**.
Regarding some of the plans I have seen work well — I am going to give you two answers; one wearing my advisor hat for the company, and one wearing my non advisor hat.
As an advisor looking out for the company;
You should look to get 2–4 competent advisors that can shore up on areas that complement you well. Think about the things you DON’T know. This is the classic “hire people smarter than you” which is harder said than done. Typically these folks get between .01-.25% for regular advisors, .25-.50% for mid range to expert advisors who are willing to spend the time, .50–1.0% for very special circumstances where you have someone that is deeply involved with the company and you might want to recruit later.
Advisor 1 = 0.25%
Advisor 2 = 0.25%
Advisor 3 = 0.25%
Total = 0.75% for 3 advisors that vest as you see fit to help you over the next 1–4 years (more on vesting below)
This leaves plenty of room for a final 4th advisor for .25%
Bigger/better advisors who get more equity have things like; excellent domain expertise to help you avoid pitfalls, deep connections within the industry to help with the intros, partnerships, and more. I try to recommend people bring on advisors that can 10X a business.
Big strategic advisors are the folks that add credibility to your co. and provide everything above, but have expertise and knowledge that you can’t find anywhere else. Think former CEO of the biggest player in your space, former lead exec. from a 10 year old co. in your space that is a public company — that sort of thing.
Advisors refer to these percentages as “basis points” such as “25 basis points” which equals 0.25%. You might already know this but just in case you hear it, wanted you to know.
As a potential advisor looking to get involved with the company;
MORE EQUITY! Lots of people here build up their portfolios by asking for 1%-5% to advise and I think that’s crazy. People claim to be incredible, but you don’t know until you work with them. Tread cautiously here. I have seen what I call “predatory advisors” come in and really mess up a cap table by promising big intros and sales contracts only to disappear after the first 6-12 months.
The funny thing about these moves is that it ends up being bad all around, even though the advisor thinks they are getting a great deal. I have seen cap tables with these folks and investors question who they are, why/how it happened, and how someone who doesn’t work as an FTE own so much.
Here are the questions I like to see founders ask potential advisors;
1. How much time do you have for this company on a weekly, monthly, quarterly basis?
2. Do you currently work with companies that are competitive or could conflict with my business?
3. How many companies do you advise today?
4. What would your current companies you advise say about you?
5. Could I speak with one of them?
6. What do you hope to gain out of this time and energy you spend?
7. What/when/how is the best time to reach you if we need something? (this one is great as its telling about how your time will go)
Much of these questions are based around time and engagement. A standing call or meeting with an advisor is great, but when you really need them will they be there for you?
Now that you have a potential advisor lined up, how should you engage the relationship?
What tools exist to protect both sides of an advisor relationship?
Setting The Option Strike Price Above Fair Market Value
Remember when I talked about getting an advisor that can 10X a business? This is putting them on the line to actually deliver for you.
Letting your Advisor Go
**LAWYERLY DISCLAIMER: This is not legal advice. Before embarking down this path, please check with your outside counsel, Board of Directors, and equity plan and financing documents etc… before making moves. Every company’s plan is different, and just like a contract isn’t a substitute for a good relationship, a blog post isn’t a substitute for legal counsel.Tags: Advisors, Equity, Startup Advisors