Posted 02 Jan 2014
One asset that startups should consider taking advantage of is advisors. Luckily for startups, advisors are prevalent and can be readily found through incubators, networking and/or personal contacts. The best advisors are in it to pay it forward or give back to the startup community.
If you want to take a very informal advisor relationship to the next level, your startup should consider granting incentive equity to the advisor. Most often, this incentive equity is given in the form of stock options (but can be an outright stock grant).
The usual range for an advisor grant is the 0.10% to 0.50% range of the startup’s fully-diluted capitalization. The most common size of the grant is 0.25% and vesting is usually over 1 or 2 years, monthly, and without a cliff.
Some entrepreneurs are stingy with their equity, and understandably so, but advisors are generally worth the price. Though, obviously, an incentive equity grant and this relationship should not be entered into lightly — do your diligence on the advisor. At the end of the day, these incentive equity grants are typically very small and the return can potentially be very large.