On Being a Startup Advisor
Usually I invest in startups, but occasionally — due to timing or valuation of a round — I become an advisor instead. Since 2014, I have joined the cap table of six companies as a startup advisor. Two were acquired and four are still active. Of the two acquired, one did not pay out a penny (it was an acqui-hire) and the other netted me ~$100,000 (the only startup not in healthcare).
I would say I have had six very different experiences. Some founders want a quarterly call, some want access to my rolodex, and others just want to put KOL names on their pitch deck or website. Let’s dive into all the questions you may have about being a startup advisor.
What does a startup advisor do?
What a startup advisor does depends on the startup’s needs... and how well the founder puts their advisors to work. Here are some examples of how I’ve seen startups utilize advisors:
Quarterly calls to get feedback on strategic direction
Providing ad hoc expert advice (legal, medical, design, market, etc.)
Introductions to potential investors, employees, or customers
Providing product feedback, and helping refine product-market fit
Acting as a brand ambassador
Creating expert content for social media
Using likeness on marketing materials, like pitch decks and website
Depending on the founder’s receptiveness and the time at hand, an advisor's involvement can fluctuate dramatically—from a passive presence, sometimes just a name lending credibility on the company's website, to an active participant through regular, hands-on work.
How and how much is a startup advisor compensated?
Usually an advisor is compensated through equity, although sometimes advisors are given cash compensation, or a combination of the two.
Equity stake
The range of equity depends on the stage of the company and the value the advisor brings to the table.
One simple way to calculate fair compensation is to come up with a value of shares that’s equivalent to expected time spent x the advisor’s hourly rate. Since shares are less certain than cash compensation, the compensation in shares should be higher than if it were just in cash.
Here are some industry benchmarks:
According to the Founder Institute, advisors generally receive between 0.15% to 1% of a company's equity, vested over a period of 2-3 years.
Carta found the median advisor grant to be 0.24%, with 70% of advisor grants less than 0.5% of the company.
General Catalyst found the annualized median advisor equity to be 0.13% for seed stage, 0.05% for Series A, and 0.03% for Series B.
Vesting schedule
Advisor shares are earned over the length of the advisory agreement. Typical vesting schedules are between one and three years. Carta found that 40% of advisory grants had a two-year vesting schedule, while 26% had a four-year vesting schedule. I think the sweet spot is two years, with the option to extend if both parties want to.
Types of advisory shares
Common stock is the most common form of equity granted to advisors in the early-stage before a priced round. Restricted stock awards (RSAs) convert into shares of stock upon vesting, providing straightforward ownership without the need to purchase the shares.
Stock options grant the right, but not the obligation, to purchase shares of the company's stock at a set price, known as the exercise or strike price. This is more common after a priced round, but does require you to exercise (pay for) the stock at a certain time after your contract. Make sure you ask what that exercise period is, as it can significantly impact your financial planning
Is being a startup advisor worth it?
It can be! But because most startups fail, it’s best to become an advisor for reasons beyond equity. Yes, a payout in 5-10 years would be nice. But did you learn something along the way? Was the experience intellectually stimulating? Did you enjoy helping the founder?
If it’s not a fulfilling endeavor, then it’s probably not worth your time.
My advice to would-be advisors
Know what you’re signing up for
Clarity is paramount. When I was a founder, my legal team suggested keeping advisor contracts vague so they could be flexible to my needs. But I personally found that setting clear expectations helped get more out of the experience on both sides. Some questions you can ask the founder:
How much of my time is expected on a monthly/quarterly basis?
How many meetings do you expect I attend every year?
Are there specific deliverables you expect from me?
Are there industry events I’m expected to go to on behalf of the company?
Understand the compensation
If you are given advisor shares, there are a few questions you’ll want to ask to understand their value:
What percentage of the company's total equity do my shares or options represent?
What is the current valuation of the company?
What are the terms for exercise and expiration of stock options?
Are there any provisions for acceleration of vesting in the case of a change in control or termination of my advisory role?
Know when your contract ends
This seems obvious, but I’ve seen advisors (whoops, me included) who keep working and representing the company even after the advisor agreement has ended. Once you sign, mark your calendar, set reminders, and initiate renewal conversations proactively to ensure that you are being fairly compensated for your time.
Only say yes if you think you can truly be helpful
Think about your own skills, knowledge, and network. Can you open doors, provide strategic insights, or guide the company through regulatory mazes? Only take on an advisory role if you believe that your contribution can be meaningful to the startup's success.
Your time is precious—invest it in places where you can make a difference.