Equity, tax and compliance
Startup Advisor Agreements and Advisor Equity: Market Ranges, Vesting and Key Terms
The short answer
Most startup advisors receive between 0.1% and 1% of the company's fully diluted shares, with 0.25% the most common grant, vesting monthly over one to two years, usually without a cliff or with a short one. The grant is typically a non-qualified stock option or restricted stock (with an 83(b) election), approved by the board and documented in an advisor agreement that includes confidentiality, assignment of any IP the advisor creates, a clear description of the expected commitment and termination rights. Advisors asking for several percent, or for a commission on money raised, are red flags.
Key numbers
| Advisor profile | Typical grant (fully diluted) | Source |
|---|---|---|
| Standard advisor, occasional calls | 0.1% to 0.25% | Acceleration (Feld and co-authors); practice |
| Strategic advisor, monthly meetings, introductions | 0.25% to 0.5% | Founder Institute FAST ranges; practice |
| Expert advisor, significant hands-on help, very early stage | 0.5% to 1% | FAST ranges; practice |
| Independent director (seed to Series A) | 0.25% to 1%, vesting over 2 to 4 years | Startup Boards; practice |
| Typical vesting | Monthly over 12 to 24 months, often no cliff (or a 3-month cliff) | Acceleration; practice |
| Most common single grant size | 0.25% | Acceleration |
What advisors are for
Advisors give expertise, credibility and introductions without a full-time role. Good ones are specific: a former head of sales at a company in your market, a regulatory expert, an engineer who has scaled the system you are building. Choose advisors for a defined need and a defined period, and treat the grant as payment for that work, not as a badge.
How much equity
Grant size depends on three variables: stage (earlier means more risk and a larger grant), commitment (hours per month, meetings, introductions) and unique value. Express grants as a number of shares calculated from a percentage of the fully diluted capitalization at the grant date, never as "X% of the company".
Acme has 10,000,000 fully diluted shares. It engages a strategic advisor at 0.5%: 50,000 shares.
- Vesting: monthly over 24 months, no cliff: about 2,083 shares per month.
- If the advisor stops after 9 months: 18,750 shares vested; 31,250 unvested return to the pool (options) or are repurchased at cost (restricted stock).
- Restricted stock alternative: if the common stock's fair market value is $0.01, the advisor pays $500 for 50,000 shares and files an 83(b) within 30 days; no tax is due if the price equals fair market value.
- Option alternative: an NSO with a $0.01 exercise price, exercisable as it vests, for up to 10 years (or a shorter period after the relationship ends, as the agreement says).
Options or restricted stock?
| Feature | NSO (non-qualified option) | Restricted stock with 83(b) |
|---|---|---|
| Advisor pays | Exercise price at exercise | Purchase price up front |
| Tax at grant | None (priced at fair market value) | None if price equals fair market value and 83(b) filed |
| Tax at exercise | Ordinary income on the spread | Not applicable |
| QSBS clock | Starts at exercise | Starts at purchase (with 83(b)) |
| Best for | Most advisors, especially after a priced round | Very early companies with tiny fair market value |
Advisors cannot receive incentive stock options (ISOs are for employees only). Grants are typically made under the company's equity plan and rely on Rule 701 for securities purposes, which covers consultants and advisors who are natural persons providing bona fide services not connected with raising capital.
What the advisor agreement should include
- Services: what the advisor will do (for example, one monthly call, two introductions per quarter, availability for ad hoc questions), and that the advisor is an independent contractor, not an employee or agent.
- Equity: number of shares, type of award, vesting schedule and the board approval that makes it effective.
- Acceleration: often single-trigger acceleration of unvested advisor equity on a change of control, since advisors usually do not continue after a sale (more generous than employee terms; decide deliberately).
- Term and termination: either party may end the relationship on short notice; vesting stops at termination.
- Confidentiality of company information.
- IP assignment: anything the advisor creates for the company belongs to the company ("hereby assigns"). See IP assignment.
- No conflicts: disclosure of competing roles; the advisor will not use a current employer's confidential information.
- Expenses: pre-approved expenses only.
- No authority to bind the company, and no finder fees: the advisor will not receive compensation based on capital raised.
Independent directors
Independent directors take on fiduciary duties and liability, so they usually receive larger grants than advisors: commonly 0.25% to 1% at seed and Series A, vesting over two to four years, with indemnification agreements and D&O insurance. One approach from Startup Boards sizes grants as roughly 25 basis points per year of service for early companies. Pay in equity rather than cash until the company is profitable.
Red flags
- Large asks (2% to 10%) from someone who will attend a few meetings.
- Success fees on fundraising: paying an unregistered person a percentage of money raised can create securities law problems and rescission rights.
- Fully vested grants on day one, which leave dead equity if the advisor disengages.
- No written agreement or no board approval: the grant may not exist legally, and the advisor may later claim more.
- Advisors who want board-level control without board duties.
Worked example: an advisory board for a seed-stage company
Acme (10,000,000 fully diluted shares, pool of 1,200,000) wants three advisors before its seed round:
| Advisor | Role | Grant | Shares | Vesting |
|---|---|---|---|---|
| Former VP Sales in the target market | Strategic, monthly sessions and introductions | 0.40% | 40,000 | Monthly over 24 months, no cliff |
| Regulatory specialist | Expert, quarterly reviews of compliance plans | 0.25% | 25,000 | Monthly over 24 months, 3-month cliff |
| Senior engineer at a larger company | Standard, occasional architecture calls | 0.15% | 15,000 | Monthly over 12 months |
| Total | 0.80% | 80,000 |
The three grants use 6.7% of the pool (80,000 of 1,200,000), leaving room for employee hires. The board approves all three in one consent, using the current 409A value as the exercise price, and each advisor signs the advisor agreement before any confidential information is shared.
How to run the relationship
- Set expectations in writing: what you need from each advisor and how often you will meet.
- Review after six months: if the advisor is not engaged, end the agreement; unvested equity stops vesting automatically.
- Avoid advisor titles that imply authority (for example "Chief Strategy Advisor" in sales materials) unless the person agrees and understands the role.
- Keep the cap table current: record each grant, its vesting and any termination date.
Frequently asked questions
How much equity should a startup advisor get?
Typically 0.1% to 1% of fully diluted shares, depending on stage, time commitment and expertise, with 0.25% the most common grant.
How should advisor equity vest?
Monthly over 12 to 24 months, often without a cliff or with a short one, and stopping when the relationship ends.
Can advisors receive incentive stock options?
No. ISOs are only for employees. Advisors receive non-qualified options or restricted stock.
Do advisors need to sign an IP assignment?
Yes. The advisor agreement should include confidentiality and an assignment to the company of anything the advisor creates for it.
Can I pay an advisor a percentage of money they help raise?
Generally no, unless the person is a registered broker-dealer. Transaction-based compensation for raising capital is broker activity under US securities law.
Should advisors get acceleration on a sale?
Many advisor agreements include single-trigger acceleration on a change of control. It is a deliberate choice; investors usually accept it for small advisor grants.