Early-stage companies routinely need expertise they cannot afford to hire. A founder building a fintech product needs someone who has negotiated banking partnerships before. A hardware startup needs an operator who knows which contract manufacturers deliver and which do not. Advisory shares are how those relationships get compensated when cash is short.
An advisor commits to a defined level of support, monthly calls, specific introductions, review of particular decisions, and receives an equity grant in return. The grant vests over time, so the advisor earns it gradually rather than receiving it at signing.
Structure matters here. Advisory equity is usually granted as stock options or restricted stock, not issued shares. Options give the advisor the right to purchase at a fixed price later, which keeps the cap table cleaner and defers the tax event.
Advisory grants run considerably smaller than employee equity. Most land between 0.1% and 1.0%, and three variables move the number: how early the company is, how involved the advisor will be, and how much the specific expertise changes the outcome.
The Founder Institute's FAST agreement, Founder/Advisor Standard Template, is the most widely used framework. It sets tiers by company stage and commitment level, ranging from roughly 0.15% at the low end to 1.0% for the most involved advisors at the earliest stage.
A working benchmark: an advisor taking two calls a month at a pre-seed company might receive 0.25%. An advisor attending board meetings and actively making introductions at the same stage might receive closer to 1.0%.
Advisory equity vests faster than employee equity. Employees typically vest over four years with a one-year cliff. Advisors typically vest over one to two years with monthly increments and either no cliff or a short one.
The reasoning is practical. Advisory relationships are shorter and less certain than employment. Monthly vesting over two years lets either side exit without leaving a large unearned position on the cap table.
Advisory shares carry a compensation expense. Under ASC 718, equity issued to non-employees for services is measured at fair value and recognized over the service period. The grant is not costless simply because no cash moved.
This matters for any company that will eventually raise institutional capital or face an audit. Advisory grants never recorded as compensation expense produce audit adjustments later, and undocumented equity commitments create diligence problems during a financing.
Between 0.1% and 1.0% covers most arrangements. The specific figure depends on company stage, the advisor's time commitment, and how directly their expertise affects outcomes. Earlier stage and heavier involvement push toward the upper end.
Yes. Every share or option granted reduces existing ownership percentages proportionally. Advisory grants are small individually but accumulate, which is why total advisory equity is worth tracking against a defined budget rather than granted case by case.
No. Advisory shares confer economic interest, not governance rights. A board seat carries fiduciary duties and entirely different compensation norms. The two arrangements should never be combined in a single agreement.
Standard advisory agreements let either party terminate, which stops further vesting. The advisor keeps whatever vested up to that point. Agreements without a termination provision leave the grant vesting regardless of whether the advisor remains engaged.
Yes. Every equity grant requires board approval and written documentation. Verbal advisory arrangements produce disputes over what was promised and what vested, and they surface as problems during financing diligence.
