Some tactical advice for anyone aspiring to secure advisor equity from a company:
When I first started out as an angel investor, I was investing small amounts of my own money and hustling to help those founders as much as I could. I was really putting in more sweat equity than cash. Because of this, I felt justified in asking for advisor shares.
But, once I became a professional investor, my compensation changed. I went from small investments generating returns to larger investments generating carry.
It’s a whole different game.
So, I wanted to share some advice to founders regarding when, how, and why to issue advisory equity:
- Cash Is King — If the investor is an institutional VC, they should be purchasing your equity with their capital, not their time.
- Advisory shares should come from the Employee Stock Options Pool or Founder Restricted Stock Pool— In the early days, it’s reasonable to reserve 2-3% of your company’s equity for advisors.
- Each advisor you select should have a different skill set — Each advisor should perform a crucial, high-leverage function (Fundraising, product, sales, marketing, industry expertise, etc.) that may not otherwise be done by any other member of the founding team.
I find the FAST Agreement, short for "Founder / Advisor Standard Template", to be the most fair template for determining how to allocate advisory equity (I will link to the details in the comments section to view)
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