What do you do when someone who was helping you in your startup in an advisory role asks for 10% in equity as compensation?

Entrepreneurs should define the model of engagement with an advisor very carefully BEFORE starting the engagement, so that expectations are set right at the beginning.

10% equity for an advisor role is simply excessive. Not just in the generally accepted model of ‘advisors’ (i.e. where an experienced individual guides the company with his/her perspectives and insights), but it is excessive even if the individual was providing advisor services as a commercial model, with clearly defined outcomes.

10% equity is something that may be given to someone who comes in as a co-founder status, and who puts his/her skin fully into the game along with other founders. Not for someone who will leverage his network to fast-track the venture, whether it is for product development, sales or fund raising.

Overall, find mentors/advisors who are keen to assist you NOT for the financial outcomes, but because they like what you do, and would like to see you succeed. Even if the individual is not seeking financial returns, it is a good gesture to offer nominal equity (0.25 -1%, depending on the nature of the engagement).

My advice to entrepreneurs is to define the mentor/advisor model, and then offer similar terms to all mentors/advisors, so that you do not get into a ‘commercial’ negotiation on an outcome based model.

However, advisors and mentors who engage with startups via formal accelerator or incubation programs will take higher equity, usually shared by the accelerator/incubator from the equity they have taken for the program.

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. View all posts by Prajakt Raut