How much equity should I offer an advisory board member?

Well, there is no standard on this one. But often the number ranges between 0.25% to 1%, usually depending on the level of involvement, the value that the person brings to the startup, etc.

The important point is NOT to make it transaction and to keep it as an honorarium. This ensures that the engagement is for the right reasons i.e. because the person like you and is excited about what you are doing. And because the aspiration should be to build a large company, if you are super-successful, even a 0.25% equity will offer substantial upside to an investor.

 

Some things to consider when distributing equity to advisory board members:

  • Provide a vesting clause i.e. the equity should vest – i.e. be due – after a period of 6 months. This allows both – the startup as well as the advisor –  to test the relationship and see if they are both enjoying the interactions and are seeing value in continuing the relationship.
  • Treat all advisory board members as equals. Even if someone is more senior or accomplished than others, as your advisory board member, they are equals.
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Author: Prajakt Raut

Prajakt Raut is the founder of Applyifi.com, and author of the book for startups - ‘Starting Up & Fund Raising’ Prajakt personal goal in life is to encourage and assist a 100,000 people to become entrepreneurs. _____________ Prajakt is the founder of Applyifi - an online platform that provides startups a 36-point scorecard and assessment report on the venture's investment readiness [www.applyifi.com], and helps them improve their odds of getting funded. Prajakt is also the founding partner of The Growth Labs, a platform where growth-stage companies get sharp, incisive advice from senior professionals and experienced entrepreneurs. [www.thegrowthlabs.in] Before starting Applyifi, Prajakt was the head of operations at IAN, founding member of a leading incubator, and the Asia-Director for TiE (2004 - 2007). Previously Prajakt had co-founded Orange Cross, a healthcare services company, and was part of the founding team member of Idealake Technologies. While in college Prajakt had founded a printing business and has spent over 10 years working in leading advertising agencies. Prajakt’s book, ‘Starting Up & Fund Raising’, helps startups understand an investor’s perspective, and helps them improve their odds of getting funded. The book also helps entrepreneurs understand the building blocks of a business.

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