How Many Stock Options Should I Give An Advisor?
Circa 2015
In 2006, Brad Feld published a post entitled “How Many Stock Options Should I Give An Advisor?” To this day, it continues to be a go-to source for companies seeking guidance about how much to pay advisors. On Quora too, you can find some helpful posts, but the data is increasingly generalized and outdated. Doesn’t 2006 seem like a generation ago as it relates to valuation and compensation?
At Bad Ass Advisors, we’ve decided to dedicate time and research, and start to apply algorithmic formulas to tech companies advising. Advisors are increasingly important for the reasons I mentioned in July, but the #1 question we are asked is “How much do I pay my advisor?”
Funny but the real question evolved into “How do I get amazing value out of my advisor?”, because it doesn’t truly matter if you pay $1 or $10,000, or .1% or 1% of your company. If they don’t add incredible value that you can multiply they have little worth.
Five Ingredients that Make a Great Advisor
- Super relevant experience, skill-set and “connection”
Is this advisor the absolute best fit in a sea of advisors? Can you be ruthlessly honest with each other? Be picky. - Availability and desire
Growing companies can’t wait. When is your ideal advisor available? Can they help now and can you onboard them quickly? - Clear goals
Advisor and company need to collaborate on achievable goals and have milestones to make them happen. If you don’t have a plan, you won’t get there. - Clear cadence
Advisor and company need to agree how they are going to work together and make it happen fast. What are the rules of engagement and timing expectations — Get on the same page! If you don’t know how to get there, you won’t. Then, are they kept up to date and always have context? - Thoughtful compensation
Do you get quickly to a fair comp and then what happens if the relationship isn’t working?
A Guide To Figure Out How To Compensate Your Company Advisor
Every company and opportunity is different. Our Advisor Compensation Guide helps you calculate the right compensation plan so your executive team, Board and investor group feel confident. We’ve also developed a number of examples, based on our experience, of what we think can work.
What’s the best answer to the question? Test run our informal calculator together with your chosen advisor. Be transparent. Tell him or her why you ended up with a given number of shares and show our boilerplate. Consider our free legal contract too and you’ll be protected from much of the downside, save big on legal fees, and hopefully have them advising and adding value next week. Comments welcome.
