It is likely that at various points throughout your entrepreneurial journey, maybe even at all points, you will work formally and/or informally with advisors.
When the time investment of the advisor is relatively small, this relationship is typically informal. However, there might be a time when you want to enter into a more formal engagement.
As startups are initially capital poor yet equity rich, a common way of compensating an advisor for their time, guidance and resources is providing them with equity.
The amount of equity you may decide to provide will depend on the frequency of engagement, what they are advising you on, the level of engagement, what stage your startup is at and the degree of expertise the advisor has e.g. standard, strategic and expert.
The Founder Institute developed the “Founder Advisor Standard Template” (Fast) to help aspiring entrepreneurs set-up advisory boards and engage with mentors. They did this by providing guidelines of how much equity a founder(s) should be giving an advisor and providing founders and advisors with a simple legal framework to formalise their relationship. FAST denotes three “levels of company maturity”. This can be seen below.
The above should be used as a guide rather than a be-all and end-all approach to awarding advisors equity. You will also want to factor in protection for your company when awarding equity.
More resources about deciding on how much equity to give to an advisor can be found below:
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