Hey Steve: We have found some great advisors for the company that we would like to bring on board, and are reaching out for your help bringing them on. We have not yet negotiated with them, but we intend to offer them options or equity for being an Advisor. We are still pre-seed, if that affects the choice.
Do you have any advice on whether we should be offering them options or offering them equity at this phase?
Do you have any other thoughts on adding advisors?
Hi there:
Advisors can be a great addition, but are often underused. Here are some things to thing about.
At this stage, most startups offer restricted stock over options. There are a couple reasons for this. First, the per share price is really low (par value). As a result, a smart advisor will ask for stock to start the cap gains clock and help get better tax treatment.
The next thing to thing about is that, by granting stock, the person will forever be on the cap table once they vest. This is different than with options, where the person must make a financial commitment to exercise. This is less important here as you will have a low exercise price so the Advisor could just buy the shares.
The main way to protect yourself is to include a cliff in the vesting (maybe 6-12 months), have a 3 year vest (or longer if warranted), set clear parameters on what you want from them and then make sure you actually engage with them a bunch early stage to see if there is a fit. Many startups will gather a bunch of advisors, not use them early on and then realize there are all of these people on the cap table with vested shares who really did not provide much value. It takes some discipline especially with so many other priorities. Given that, it is best to start with just a couple people and then add only when there is a clear need.
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