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How Much Should Startups Pay Their Advisors?
Equity grants of 0.25% — 1.0% are the standard rate for compensating startup advisors
As a mentor at a number of accelerators, I’m sometimes asked to continue the relationship as an advisor to the company.
Invariably, the first question the founders need advice on is how to compensate me for my role.
Most of the questions founders ask don’t have simple answers. Fortunately, this one does. But before we get to that, let’s make an important distinction.
Working vs Advising
If you want me to create a pitch deck, find investors, sign up customers, or build a marketing campaign, well…that’s real work. That’s a job and I expect to be compensated as a consultant or co-founder.
If instead you want to pick my brain or take advantage of my contacts, that’s different. That’s easy. Whether it’s a scheduled hour each week or an occasional phone call, it’s not a big commitment. But advisors do expect to receive a small amount of equity in compensation for our efforts. The question is how much?
Advisor Shares
How much am I worth? An hour of my time could save 100 of yours. Or lead you from a dead-end path onto the route to success. An hour of my time might save 10 hours you’d spend on lawyers. Based on that, I estimate my value at $8,600 per hour. Will anyone pay that rate? So far, I don’t have any takers.
How much should you pay? The standard consensus is that advisors and mentors are granted between 0.25% and 1.0% of the company stock vested over 4 years.
Within that range, the exact amount depends on 4 factors:
- startup stage: 1% of a $100M Series B startup is very different from 1% of a pre-revenue startup. The earlier the stage, the larger the stock grant.
- level of commitment: a board member should be compensated more than someone available for a monthly call or an occasional introduction to investors.
- length of time: someone who helps out for years should receive more than someone whose role is limited to a few months. Most advisors fill gaps at one particular stage so it’s rare…
