Advisor Equity · Advisors

What is reasonable equity and dilution for an advisory board member?

Mike Schinkel Managing Partner; NewClarity and WordPress Architect

January 9th, 2015

I'd like to know what someone should expect in terms of advisor equity and if the equity should be allowed to be diluted or not?  

I am a serial entrepreneur with a prior startup and numerous other prior companies and my experience is both CTO and CEO level.  I have been asked to be on an advisory board for a content and transaction based web startup related to food. 

I'll be happy to say what was offered but I'd like to here what others have to say before I say that so as not to bias the answers.

Thanks in advance.

Kate Hiscox

January 9th, 2015

What are they looking for from you? How much time commitment, method of communication, meeting schedule? Just advice or roll up your sleeves?

Mike Schinkel Managing Partner; NewClarity and WordPress Architect

January 9th, 2015

Thanks for asking. Here is what they are asking for:

  1. Be available for a minimum of one monthly advisory meeting and/or call.
  2. Participate in Advisory Board meetings (all advisors and key principals) once a quarter (4 per year).
  3. Provide counsel, guidance, access to personal/professional connections or by other means consistent with your role as an Advisor.
  4. Use best faith efforts to promptly respond to inquiries initiated by the startup.

Chris Saad Product Manager, API at Uber

January 9th, 2015

Advisors typically get about 0.5% of early stage equity. A little less if they are less involved/less impactful or a little more if they are rockstars. Of course that equity must be allowed to dilute.

Kate Hiscox

January 9th, 2015

I would say 0.5% and yes, should dilute. It really depends what stage the company is at too and how much you bring to the table in terms of expertise and name plating.

Mike Schinkel Managing Partner; NewClarity and WordPress Architect

January 9th, 2015

Thanks Chris for your answer.

The offer is 1/5th of that per year.

> Of course that equity must be allowed to dilute.

Why "Of course?" It would seem like with such a small grant it would very easy todilute simply by issuing more stock (vs. selling a percentage of existing stock.) BTW, there are 1 million shares authorized; I've seen a board decide to issue an additional 9 million shares and give themselves 9 of those shares for every one of the shares they own, but not for everyone else who was not on the board. This is my concern.

Rob G

January 9th, 2015

There are several other FD threads on this subject.  And, yes, you should absolutely expect your equity along with every other shareholder's equity to dilute. Any anti-dilution provisions you or the company implement will cause serious problems for the company down the road assuming the company plans to raise funding or offer equity to others. 

Vijay MD Founder Chefalytics, Co-owner Bite Catering Couture, Independent consultant (ex-McKinsey)

January 9th, 2015

Do you expect that the company will actually be worth something?  Equity % of 0 is 0.

Most advisors participate at the early stage because they want a chance to get to know the founders, like the idea and want to see where it goes, see potential for a role/ consulting in the future, like networking with the other advisors, etc.

If you add value early and the company goes somewhere, you can always re-capture that value (going forward) in other ways.

Mike Schinkel Managing Partner; NewClarity and WordPress Architect

January 9th, 2015

Thanks everyone for the replies.  Helps me to sort through my correct and incorrect notions about being an advisor.