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. Continue reading “What do you do when someone who was helping you in your startup in an advisory role asks for 10% in equity as compensation?”
This was my response to a question on Quora.
The person had provided this additional information: We do 24 month vests and are about a year in with someone who just isn’t adding much value. We don’t want to burn the bridge but feel it necessary to unwind the relationship. Other than simply picking up the phone to let this person know, what other steps do we need to take to do this properly?
Different people will have different styles, and different personality types will deal with these situations very differently.
My style is to have an honest conversation. State your expectations, highlight where the delivery has not been as expected, assess if the reasons were within the individual’s control, and provide an opportunity for the person to respond. And ask the person what you think is a fair way forward.
In most cases, if you present a fair assessment of how things are going, the person may himself/herself offer to step aside. Of course, if the person is not agreeable to stepping side, then you need to do what is in the best interest of the company.
Of course, it is also possible (and often that is also the case) that the company itself was not able to leverage the advise and inputs of the mentor/advisor. And that is also a reality that needs to be dealt with. If that situation is unlike to change, even then having an honest conversation and saying “I don’t think we are geared to make full use of all the good advise you give us. We are just too bogged down with other priorities, which I understand you may or may not agree with. But for now, we have decided to focus on those. How do you suggest we move forward. Can we disengage for a bit and see if there is merit in reengaging when we are in a better position to benefit from your wise advice?”.
(And of course, the shares vested till then should be given to the advisor).