A founder of a startup at the seed stage recently asked “so what’s the right amount of equity to give to advisors?” The answer is none. Here is why.
-No one cares who your advisors are. We’re a Series A investor and never have I ever asked “so who are your advisors?” It’s just not important. What investors care about are the milestones you’ve achieved, your statistics and financials, valuation, and where you’re headed. Advisors mean nothing.
-Advisors fizzle out. The vast majority of advisors we’ve seen want to be super helpful when you first meet them and many are, but then their utility fades. There is only so much even the best advisor can do for you. No one knows as much about your business as you’re about to learn, so by nature an advisor’s value is capped.
-Advisors are expensive. Let’s say you have 5 advisors and you give each one 0.5% of the equity. Well, that’s 2.5% of the business once you add it up. That’s meaningful, especially if you believe your business will sell for $50mm+. Generally speaking, you should hoard your equity and give it to no one, not even independent board members if you can get away with it. Equity is for founders, investors who buy it, and employees who vest into it only.
-The best advisors are free. The best advisors you’re going to find are ones that talk to you for free. They’re motivated by seeing you succeed, not by taking your precious equity. If an advisor insists on equity, then they’re a scumbag :)
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