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

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JASON LEMKIN

Let’s step back.  This isn’t as shocking a request as it sounds.  Even though it’s crazy.

Imagine your advisor is pretty successful.  She sold her last company for $500m, and made $20m or $50m or $100m.  But still wants to help and be involved.

If you give her 0.5%, or 0.25% (typical high value, but very early-stage advisor grants) … how will that impact her economically?

Say after 3 rounds of financing, that 0.25% is diluted to 0.15%.

And then you kill it.  Just kill it.  And this advisor puts a huge amount of her social capital in to help you.  Gets you funded.  Gets you customers.  VPs.  etc.

And you sell for $150,00,000.  A rare and amazing exit (< 50 a year in tech).

Well, your advisor makes $225,000.  After seriously investing her brand, time, etc. in you.

Not worth it. At least, not just for the money. That’s not even 1% of her net worth.

But 10% … that’s worth it.

….

OK, so at least understand even though the answer of course, of course, has to be No — there’s no way you can give an advisor 10%, or likely, even 1-2% … it may not be as crazy as it sounds.

So what do you do?

Well, you can’t pay these advisors “properly”.  You just can’t.

So do what you can.  Do the best you can.  Offer her the high end of normal — whatever you can.  Vest it over 2 years in case she flakes.  Let her invest as much as she wants, within reason, in the next round.

Be grateful.

Offer the best package you can.  And see where it goes.

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Published on March 16, 2016
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