11 Mar Day 23: Advisor Equity
It’s no secret that many young startups give too much, too early and to the wrong people. In fact, “aside from not having a technical co-founder, the most common mistake that we see is a skewed list of investors,” explains Alan MacIntosh, a partner at Real Ventures.
In building a startup, there will most likely be a certain point in time when you’ll realize that no one in your entourage is able to take you to the next level. This is the point at which you should “seek out someone historical with whom you have no pre-existing ties to but think could be a champion for your business,” says Alan.
Deciding how to adequately compensate advisors is tough – exacerbated for FounderFuel companies by the fact that they’re given free access to a strong mentorship network throughout the program.
So you’ve built a startup and reached the point of needing help to get to the next step: how and when do you compensate the right advisors?
Although it may seem intuitive, it’s important to stress the necessity of getting to know a potential advisor prior to working with them. Liking a person often comes before liking an opportunity that they present. A relationship with an advisor should be one of good chemistry, commitment, and mutual talent.
This is important for many reasons, one of the most important being that, unfortunately, it’s common for mentors to be extremely enthusiastic for the first week, and then become difficult to get ahold of. Really knowing the person that you’re working with ensures that you do not enter into a relationship with a disappearing act.
Onto numbers. Alan’s rule of thumb, after having been at this for quite a while, is single digits, low percentages and options rather than pay. The more rigorous you are in the process of bringing on a mentor, the better. This will most likely look like a one or two page agreement between the two parties.
Here’s a list of great articles that go into more detail about equity for advisors:
Free Startup Docs: How Much Equity Should Advisors Get?
Everything you ever wanted to know about Advisors, Part 1
Everything you ever wanted to know about Advisors, Part 2