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How Much Equity Do You Give a Person That Is More Than an Adviser?

I have a marketing expert that is extremely excited to advise This Dog's Life (.co) but wants to be more than an adviser. He wants a hands on role and has committed four hours a week to helping me. His usual consulting rate is $80-$100 an hour but said he could do it for $50 an hour (which for a bootstrapped company is still a lot). Anyway, he did bring up equity and was wondering what the appropriate amount should be?

21 Replies

Lawrence I Lerner
1
1
Lawrence I Lerner Entrepreneur • Advisor
Digitalization and Transformation Coach
Here's my $.02. Take that person's normal rate and give it in equity shares against the value of the company. This is fair all around and puts skin in the game for the advisor.

Just fyi. I work with a lot of early stage companies and some mid-markets were I use this formulae.
Sergey Gladun
1
0
Sergey Gladun Entrepreneur
CEO at Agilie, Design, Mobile Apps and awesome Websites
+1 to Lawrence advice.
By my opinion if this person helps and his input deserves to be paid, you definitely have to follow. Use his normal rate, don't ask about the discount. It could harm the productivity.
.

Alec Tavel
7
0
Alec Tavel Advisor
Entrepreneur, Senior Consultant
Paving him with a convertible loan allows you to pay him gradually without the need to issue equity at the moment and having to value the company now.
Julien Fruchier
7
4
Julien Fruchier Entrepreneur
Founder at Republic of Change
Zero. Equity at early stage is for founders and investors, period. This guy is not "more than an advisor", he's someone who's giving you a discount for work. He wants equity? He needs to earn it either with sweat (ie. no charge) or he needs to buy his way in with cash.

You may wan to talk to your lawyer about the long term consequences of giving out equity for things like discounts on marketing.
Brent Wittke
6
0
Brent Wittke Entrepreneur
CEO, Co-founder at Resale Therapy
Andrea,

Always a wide rage of opinions in this forum. When it comes to advisory positions, typically the advisors are excited to lend a hand, and hourly rates seldom figure into their compensation arrangements. My advice is to ask your attorney for a advisor agreement, very similar to a sub-contractor agreement. If your company is incorporated, and you have issued stock, you will be able to award shares.

Determine the length of advisory services needed (1-year, 2-years...) and agree upon a share quantity that you will issue as compensation for advisory services. Never, I repeat, never issue, or demonstrate the quantity as a % of equity. If the company issues new stock, or increases the amount of shares available, an agreement based on a % of equity would become unfairly overcompensated.

Example: When we incorporated, we created 1000 shares, we allocated 500 for issue to founders, angels investors, and consultants/advisors. a typical advisor providing 3hrs per week was granted 15 shares (3% of issued equity, but only 1.5% of overall) for 1 year of advisory services. We built in a vesting schedule, and triggers that would allow us to revoke share grant for non-performance.

Equity is a finite resource, don't squander it. Moreover, spend shares not % of equity.

Reach me offline if you would like a boiler plate version of the agreement I mentioned.

Brent
Bryan Stewart
3
1
Bryan Stewart Advisor
Founder at Media Stew
Zero Equity. If you want his help, pay him. If you don't have $200 ($50/hour x 4 hours)then how can you be in a place in your business to know the real consequence of giving out equity?

Be VERY cautious about giving out % of your business.
Daniel Farmer
2
1
Daniel Farmer Entrepreneur
Vice-President Sales & Operations at Baldgorilla

It is hard to judge someone's interest in your start up. I work a lot with different early stage companies and I provide discount in the objective of building relationship and support them in the early stage. Then I might be able to hope for some future work at a more lucrative rate once they get the funding.

What I would say is if he is giving you 4h a week at a discount, then those hours are probably not sold at is full rate or else why would he cut is profit in half? second, since he already has time to spare and he is making 0$ for the 4h. its better to sell them at 50$h. In conclusion I would just hire him at that rate (rate that he agrees to witch means he's still making money) and tell him that if he is good and this picks up he will be the one you will contact in the future.

I think it was mention above, try to find the whats in it for both of you and it needs to be a win win.

Good luck!

Jeremy Grodberg
3
0
Jeremy Grodberg Entrepreneur • Advisor
Web CTO & Software Architect - Available
Typically advisors get 1-2% equity and no cashfor 1-2 years of service, whileconsultants get cash but no equity. In my experience, cash+equity deals in pre-Series A companies for part-timers usually make both sides feel cheated.

I like Alec Tavel's idea of paying him with a convertible note. You are in no way ready to value the company properly to give him equity now and you don't know what his contribution will end up being to the company. You can always pay him more later but you'll have a hard time clawing back (or diluting out) his equity if he turns out to be a bad fit.
Andrea H
0
0
Andrea H Entrepreneur
Special Projects Director
I guess I want to know what is the normal equity compensation for advisers. And perhaps I am wrong on this but I was assuming advisers for the most part make introductions, provide advice and mentorship but aren't necessarily hands on. So besides committing these four hours, he would be acting as an adviser, contributing to the startup in other ways.
Rich Greenwood
0
1
Rich Greenwood Entrepreneur
Demand Generation Specialist
I usually go 50/50 (50% cash, 50% equity)
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