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What is an advisor worth when they have deep knowledge?

I'm considering becoming an advisor to a startup that is focused on a product that I helped develop as a co-founder. I'm excited about their market opportunity, but we're running into some headwinds on how to assign an equity value to my expected contributions. If I were a general industry expert who could give advice about the market or the competition I could see using a simple formula based on company valuation and the number of hours I would spend with them. However, I see myself in a unique position where I have deep knowledge of the specific technology that they will target with their products. Does that justify setting the equity compensation based on the scope of the contributions that they agree I can make rather than on the simple formula?

4 Replies

James Sullivan
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James Sullivan Entrepreneur
Direct Mail & Digital Solutions, that also may need Public Relations, Print Production and more, for less...Now
same as any other joe-blow.
Jim Sullivan
Jared Worley
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Jared Worley Advisor
Strategic Alliances & Business Development Leader l Entrepreneur l Consultant | Connector
Depending on the stage of the company you can expect something along the lines of a 1/4 percent option. This is not something set in stone but keep in mind most advisors are not contributing for the sake of equity unless they are also financially involved. Your situation places you in between.
Bill Lennan
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Bill Lennan Entrepreneur • Advisor
Red Rope Social
Don't get stuck on the $$.
So many other things matter before $$ is even in the ballpark.

Is this a team you want to work with?
Do you have a real shot at getting them sales??

If either of the above is "no" - you are the wrong player and equity is irrelevant; do the right thing and tell them to find someone else.

If both are "yes", start small and add more equity as you prove your value.
( deep technology knowledge is interesting but the team and sales are infinitely more important )
Steve Owens
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Steve Owens Entrepreneur • Advisor
Finish Line - A Better Way for Small Companies to Develop Products
Charge an hourly rate. Take a loan for your invoices. The loan has to be paid back at some point - usually some significant funding. The loan earns interest and has warrants (usually convertible to the A round) equal to the peak amount of the loan. Not much different than a convertible note seed round.

I do not think you want common shares - you want the professional round - the A. Commons' might get crushed.

Not very useful to talk about valuation when a company is so early - there is just no way to come up with a real number.

Not very useful to talk about percentages - everyone will get diluted when the real money comes in.

Hope that helps.


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