We are early stage, pre-revenue but with a live product. Great team with industry-specific experience in-house. Solid 5 year plan.
Potential advisor will bring capital but also other services: grooming us for (and sourcing) Series A investment, big business thinking, etc. So they would be a pretty hands-on advisor.
Should it be performanced-based and should it be vested… if so how… and big question:
HOW MUCH EQUITY?
I say yes and yes. I paid someone recently to do the same. Gave him $30K to work with us for 6 months, and 3% equity. Big mistake. While he put some effort in, his supposed contacts were a lot fewer than he said. Make it performance based and vest him over 1-2 years.
There are lots of people out there claiming to do the same. Few deliver.
My starting point is that shareholder advise should always be free,. If that shareholder is bringing in big bucks, the extra equity (warrant) is basically a large investor discount. If he is angling for an advisory role also, then separate that role, treat him like any other employee - performance-based and vesting period.
Advice is the noun.
Definitly no equity beyond what they invest for. Any more would be vested ove two to three years based in "makin rain". All Angels who are worth a damn help their investmets trrive because it hedges against loss on their capital, not for more equity. @kaffegeek
There is no easy answer. Although the feedback has been negative here so far, there are indeed examples of brokers / advisors who bring capital to the table (make it rain) and thus justify their retainers and commissions and equity grants.
Standard advisor pay: 0.5-2% max, on vested schedule.
Standard advisor acquisition procedure: Ideally, in the beginning, advisors do not collect equity, they give input because they want to help. After sometime (eg regular help over a couple months), if the founders find advisor useful, then they propose a permanent arrangement with equity.
Standard advisor duties: advice company on any/all aspects, depending on advisor expertise, make intros to potential partners/investors/employees, etc.
UNLESS advisor is investing some money themselves, no additional equity. And if they invest, then no founder equity for them, only the equity from their investment. Likewise, $$ compensation is only for actual employees.
OP here... if the advisor/potential partner is our pipeline to finance and can secure seed and series A money (which is f-ing hard to do as we're first-timers) then hell, we could go as high as 10% !!
Purely performance-based of course. If they don't bring it it, or deliver on their 'advice', then they don't get it?
Do first-timers need to take such a risk to get going if they have a chance to secure finance... I say HELL-YES !!
Who agrees? Please +1 me.
Dumb is as dumb does. Any investor who sees e.g. 50k (10%) of 500k investment going to pay for some advisor will yank their money back and you'll end up branded as a fool. And you know word gets around, so don't become that person.