Equity & Advisors | My Latest TechCocktail Piece
Free advice is often worth what is paid for it – nothing. Advice that is highly valued obviously will carry a higher price tag. But how to calculate the value of advice is challenging. Early-stage startups have an even more difficult time as they typically do not have any money to pay with, so they use the only currency they have – equity in their company.
Creating a solid group of advisors is a critical milestone in most early-stage startups. An advisor brings legitimacy to a startup (a stamp of approval) – at least the founders have convinced someone else that they have a good product or service. Beyond basic legitimacy, the right mix of advisors should help accelerate growth as well as provide a more solid foundation for the company by leveraging business expertise and other domain knowledge. While there is a relatively “standard approach” to compensating advisors (see the Founder Institute’s FAST document), this is more of a starting point than a definitive rule. The details and specific composition of the startup should dictate the terms.
There are four general themes founders should consider when assembling their advisors and determining equity and other compensation.
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