Advisor Equity

Best practises on giving equity to board advisors?

Priya Prakash Designer-Founder, D4SC-Changify

October 25th, 2013

Is it standard for board advisors to ask for equity upfront? 
What are the pros & cons? 

We are a crow-powered platform and one of the advisors - an industry expert we have been speaking to is keen in being paid in equity and says its "good" for the company. 

Quoting him - "it is easier to commit something with an equity, when there is a mutual win-win to make progress. And I think it bring credibility for the company too, when people have been ready to commit to it for equity and in that way trust to the entity. "

Is this now the standard? Sorry if this has already been covered in a previous thread. 

Thanks in advance-
Priya

Matty Sallin System Financial, Inc.

October 25th, 2013

In my experience, not a single advisor or potential advisor has ever asked for equity up-front. I've always offered it (or even badgered them to let me know what they felt was fair). The fact that they are pro-actively asking for equity raises a red flag in my book, but that's just me.

Lona Duncan

October 25th, 2013

Those of you that expect advisers to grow the business and do the hustle founders/employees are supposed to do have the wrong definition of an adviser. 

Here are some guidelines:

Advisor Compensation

 

Advisor
Performance Level

Stage

Idea Stage

Startup Stage

Growth Stage

Standard

____ ____ (0.25%)

____ ____ (0.20%)

____ ____ (0.15%)

Strategic

____ ____ (0.50%)

____ ____ (0.40%)

____ ____ (0.30%)

Expert

____ ____ (1.00%)

____ ____ (0.80%)

____ ____ (0.60%)


Standard Performance Level

Commitment

Services

Compensation**

Attend quarterly meetings to provide feedback on Company’s strategy for at least one hour.

Attend quarterly meetings of the Company’s Advisory board.

Provide reasonable response to email requests by Company.

Promotion: On top of the regular advice and insights, Advisor agrees to actively promote and make introductions on behalf of the Company through Advisor’s overall network of business contacts, including forwarding the Company’s business plan and other materials as requested by the Company.

Idea Stage is            0.25%

Startup Stage is        0.20%

Growth Stage is        0.15%

 

 

Strategic Performance Level

Commitment

Services

Compensation**

Standard Performance plus:

Attend monthly meetings to provide feedback on Company’s strategy for at least one hour.

Attend one additional monthly meeting for up to one hour with a potential customer, investor, strategic partner, vendor or employee.

 

Standard Performance plus:

Recruiting: Advisor agrees to assist Company in finding additional, potential founding team members and employees through the Advisor’s overall network of business contacts.

 

Idea Stage is            0.50%

Startup Stage is        0.40%

Growth Stage is        0.30%

 

 

Expert Performance Level

Commitment

Services

Compensation**

Strategic Performance plus:

Twice monthly meetings to provide feedback on Company’s strategy for at least two hours each.

Strategic Performance plus:

Contacts: Advisor agrees to make introductions to and assist in the acquisition of marquee customers, strategic partners and key industry contacts and attend meetings with such potential customers, partners and key contacts.

Projects: Advisor agrees to assist the Company on at least one strategic project as requested by the Company during the term of this Agreement.

Idea Stage is            1.00%

Startup Stage is        0.80%

Growth Stage is        0.60%


Anonymous

October 25th, 2013

I wouldn't or if you do give them .25%    If they are asking for a percent or more I would run.  

Just dont make the mistake of giving away equity to successful people thinking that your problems will be solved when that person comes on board.

I did that with my first venture.  Complete waist.

All the smarts in the world cant replace hard work and talking to customers.

Happy to connect on skype if you want to talk more about it.

Michael

October 25th, 2013

Anytime you give up equity, regardless of the "norm" ask yourself one question and you will typically get your answer.

Does this person bring value to grow the company by whatever KPI or metric you have determined.

If your growing monetarily, does this advisor offer you the ability to grow internally or externally monetarily and is the equity share needed or wanted.

If you're growing by employees, size, user base, customer base does this advisor afford you that opportunity quicker, faster or by necessity. 

Equity is just another form of "paper money" , you have to gauge the NEED for it not so much the want for it IMO.

Kym McNicholas TV Host, Tech Jounalist, Director of Extreme Tech Challenge, Host of KDOW Radio's NewFocus On Innovation

October 25th, 2013

I decided to give the standard 1/4% equity to each advisor. What was cool is that each one of my advisors said they would help me just because they liked me and they believed in me. They said they didn't want equity. But the reason I decided to go ahead with it is because I want a 100% guarantee of a returned phone call. I want each person to feel like my success is their success.

Anonymous

October 25th, 2013

You mean upfront as in without vesting? Never give equity without vesting - everyone should vest, even the founders. Advisors are usually compensated with options on 24 or 36 month vesting schedule with no cliff, in 0.1-1% range, 0.25% being very common. Of course, it depends on the maturity of the company, and the value the advisor brings.

Daniel Caplin Vice President of Services at WhatCounts

October 25th, 2013

I recommend having the equity vest. IE- shares are allocated to them, but they are distributed over time and there are specific deliverables that they do over time that releases the shares to them. Then everyone is protected as well as encouraged to support the goals of the venture. Daniel Caplin ph. 678.886.3262 daniel@danielcaplin.com danielcaplin.com http://www.linkedin.com/in/danielcaplin/ LEGAL DISCLAIMER The information contained in this e-mail is for the exclusive use of the intended recipient(s) and may be confidential, proprietary, and/or legally privileged. Inadvertent disclosure of this message does not constitute a waiver of any privilege. If you receive this message in error, please do not directly or indirectly use, print, copy, forward, or disclose any part of this message. Please also delete this e-mail and all copies and notify the sender. Thank you.

Mike Moyer

October 25th, 2013

Hi Priya! Great question!

Never give anyone (including yourself) any equity unless they provide value to the company. When they DO provide value you should give them exactly what they deserve based on the value they provide relative to the value that others provide. No equity should ever be granted in advance. This is the same thing as paying someone in advance.

There is an easy way to do this, it's called a dynamic equity split and I you can implement one to make sure that everyone on your team is getting exactly what they deserve. The alternative is a "fixed" equity model which will never achieve fairness. So, to give an advisor .25% upfront is always going to be the wrong amount. It will either be too little or too much. At this point it's impossible to tell.

I've written a book on how to implement a dynamic equity split. It's called Slicing Pie and you can have a copy if you email me at mike@slicingpie.com

This is, by far, the best and most fair way to divide equity in an early stage company. 

When you get your dynamic fund up and running here is a simple letter of agreement for an advisory board member.

Thanks for the question. Please let me know if I can help!

-Mike Moyer


Luis Avila Owner/Fullstack Architect at IdeaNerd LLC

October 25th, 2013

Not really answering your questions but this story might help.

I offered my volunteer advisor equity... the standard .25% - 1%... when he saw what was expected in return, actually helping to grow the business and not just give advice, he quit. Doh!

Ben Sweat Director, Product at Idealab

October 25th, 2013

I think it is standard. I've always heard .5-3%. I've heard from some the advisors were critical early on for momentum and credibility but I think that fades over time. What I don't know is what kind of terms or vesting goes with that. Sent from my iPhone