Advisory shares give you a way to compensate an advisor with equity for continuing guidance, introductions, or expertise. Before you offer a grant, define the work, agree on written terms, and consider how the equity affects future hiring.
What counts as advisory shares?
Advisory shares are equity compensation for a person who provides ongoing support to a startup without joining as an employee. The term usually describes common stock options or restricted stock, rather than a separate class of shares. Advisors may contribute a few hours each month, offering strategic input, introductions, or expertise that the company needs.
The key distinction is continuity. A person who makes one introduction or completes a specific consulting task may be helping your company, but that does not automatically create an ongoing advisory relationship. If the work is limited to a defined task, consider handling it separately rather than granting equity for a continuing role that has not been established.
Advisory grants commonly come from the company’s option pool. That pool is finite and may also be used to compensate employees, so each grant affects the equity available for other contributors. Treat the offer as a compensation decision, not a casual thank-you.
How much equity should you offer an advisor?
There is no single grant amount that fits every startup or advisor. The appropriate amount depends on your company’s stage, the responsibilities you agree on, and the contribution you expect. Define the role before discussing a percentage: an advisor who provides occasional input may warrant a different grant from someone expected to support strategy, hiring, customer introductions, or a critical area of expertise.
Carta’s H1 2024 compensation data reports the following median advisor grants:
| Company stage | Median grant |
|---|---|
| Pre-seed | 0.21% |
| Seed | 0.12% |
| Series A | 0.05% |
These figures are context, not a formula. Carta’s data also reports that only 10% of pre-seed advisors received at least 1%. Consider the expected work and the company’s stage rather than setting the grant based on an advisor’s reputation alone.
Write down what you expect the advisor to do before you settle on equity. Clear responsibilities help both sides understand what the grant is intended to compensate. They also give you a more grounded basis for deciding whether the proposed amount is proportionate.
How should advisory shares vest?
Vesting connects the equity to service over time. Advisory grants commonly vest monthly over two years, often without a cliff. Some agreements instead include a three-month cliff, meaning vesting does not begin until the advisor has continued for that period.
Avoid granting the full amount immediately just because both sides have agreed to work together. Immediate vesting on signing compensates for a relationship before the planned guidance has taken place. A vesting schedule instead makes the grant depend on continued involvement.
It can also help to work together before finalizing an agreement. The Founder Institute’s FAST template recommends a trial period of at least one month and at least eight hours together. That gives you and the prospective advisor a chance to assess whether the working relationship and advice are useful before committing to a grant.
What should an advisor agreement include?
Put the grant in a written agreement rather than relying on a verbal understanding. Record the type and amount of equity, the vesting schedule, and board approval. If the grant consists of options, document the strike price as well. The agreement should also make the expected responsibilities clear, so the terms reflect the work you have discussed.
Unwritten or incomplete commitments can leave basic questions unresolved. They may also become harder to explain during investor diligence. Keeping a clear record of the grant and its approval helps you understand what the company has committed to advisors.
The Founder Institute offers FAST as a free, one-page advisor agreement template. A lawyer-reviewed template is another option. The right terms can depend on the grant and your circumstances, so get qualified professional guidance when needed.
How can advisor grants affect your cap table and taxes?
Because advisory shares usually come from the option pool, each grant reduces what remains available for future hires. A pool may also be refilled at founders’ expense before a priced round. Consider the grant alongside hiring needs and other equity commitments, not as an isolated percentage.
For example, ten advisors receiving 0.5% each would collectively receive 5% of the company. The published FAST guidance describes 5% as the size of a whole advisory pool. A larger group of loosely defined advisors can therefore add up to a substantial commitment, particularly if records do not clearly explain each person’s contribution.
Tax treatment can differ by grant type. Advisors who are not employees typically receive non-qualified stock options, or NSOs, or restricted stock rather than incentive stock options. With NSOs, ordinary income tax generally applies at exercise to the difference between the strike price and the fair market value. Capital gains tax may apply to further gains when the shares are sold.
For restricted stock, an 83(b) election may allow the advisor to pay tax based on the shares’ current value rather than at each vesting date. The IRS deadline is 30 days after the shares are transferred. Tax consequences depend on the grant and the individual circumstances, so confirm the details with qualified legal and tax professionals.
What advisory share mistakes should you avoid?
- Offering equity for a name rather than a contribution: Base the grant on expected involvement and agreed responsibilities.
- Committing too much too soon: Use compensation data as context, then evaluate the work and company stage.
- Skipping vesting: Link equity to ongoing service instead of granting it all when the relationship begins.
- Treating a single introduction as an advisory role: Keep one-off assistance separate from a continuing commitment.
- Leaving terms informal: Put the grant, vesting details, and board approval in writing.
- Overlooking the option pool: Consider the impact on future hiring and possible pool changes.
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Frequently Asked Questions
Are advisory shares a separate type of stock?
Usually, no. The term generally refers to common stock options or restricted stock granted to an advisor, rather than a separate share class.
What is a typical vesting schedule for an advisor?
Advisory grants commonly vest monthly over two years. Some agreements have no cliff, while others use a three-month cliff. State the schedule in the written agreement.
Do advisory grants usually come from the option pool?
Yes. They usually use equity from the option pool, which is also used for employee grants. Account for the effect on future hiring and any potential pool changes.
Can a startup give an advisor incentive stock options?
Advisors who are not employees typically receive NSOs or restricted stock rather than incentive stock options. Confirm the appropriate grant and its tax treatment with qualified professionals.
Should you give equity for one introduction?
A single introduction is generally different from ongoing advisory work. Define the expected responsibilities before offering an advisory grant, and consider handling one-off help separately.