TLDR: You’re probably paying your advisors too much and asking for too little in return. Systems and structure always outpace ideas.
It used to be that my founders would add advisors to their company as a way of borrowing credibility in the early days.
The conventional wisdom was to have one to five advisors, each with a quarter to one full point of equity.
The FAST Agreement was widely used, almost like a SAFE for advisor shares, and the equity recommendations were as followed:
In recent years, I’ve been exposed to stronger and stronger founders, and I began to see this practice of adding names to the cap table for the sake of borrowed credibility as a negative signal, and there are a lot of reasons why.
Some of them, in no particular order:
If these advisors really do believe in you and in your business, they should be investing
If these truly are strategy or expert advisors, they should have been successful enough in their careers that investing $10K-$100K in your company is no big deal
In my experience, "advisors” who are not investing rarely commit time and relationship capital in a material way
Usually advisors front-load their involvement and by year two they are doing very little, yet they continue to vest their shares
Investors don’t really care if you have a colleague who let you put their face on a slide, they want to see objective proof of execution (ie material progress, momentum, and investment)
Typically these advisors come from brand name companies and know virtually nothing about zero to one
Most founders don’t actually activate these advisors, or hold them accountable the way that they should, and even more rarely do they call them up and have the awkward conversation of firing them to stop their equity from vesting
And the list goes on.
But increasingly over the past couple of years, I have seen founders who are building a new kind of advisory board.
It starts with identifying a group of people who fit three distinct criteria:
Expert-level advisors
Potential customers
Angel investors
Ideally, they are all three.
These founders are going out and recruiting dozens of advisors and approaching them with a new kind of offering:
Equity in the form of 200 - 5,000 shares per advisor. Relative to the 10-15 million outstanding, that might be 10,000 total shares for the advisory board, or .1% of the company rather than .25-1% for each advisor
Access to WhatsApp or Telegram group with community of their peers
Monthly or quarterly advisory board calls to share product feedback, industry news, company progress, etc
Access to invest in the company, sometimes at a discount to a future round
Kickbacks or referral bonuses in the form of cash or additional equity for referring new customers, employees, or investors
Ability to run a free or discounted proof of concept as a customer
In the early days, by focusing on a group like this, founders are streamlining their investor outreach to only those who can add value, while still adding distribution advantages to their business, generating momentum for the brand and product, and acquiring that borrowed credibility that early stage institutional investors like to see.
I’ve seen a lot of versions of this now, and some interesting customizations as well.
For example, I am an advisor to a company that has grown from a $25m valuation to a $500m valuation, and my equity does not vest on a timeline, but rather on a company valuation milestone basis. In that group, we are all copied on regular company-wide emails, we are invited to events and corporate retreats, and we are often asked for introductions proactively. What I love about this version is that the valuation vesting aligns everyone toward a north star of growth, and the advisory board oversight and activation is material—leaving very little work for me other than saying yes or forwarding an email to unlock a relationship. In this case, one of my introductions led to a $14m debt facility for the company to buy back equity from early shareholders and return it to employees.
In another example, a founder holds regular quarterly business reviews with his advisors to receive product feedback, and sets up a list of asks for all attendees, such as sharing the news of a fundraising round to their socials, sending candidates for an open role, or agreeing to test a new feature across their enterprise organizations. Great recurring systems, massive leverage in group calls, and real accountability.
And finally, one of the most tangible examples of value add is during a fundraise process. I have a company raising right now who put together a Telegram with ~20 advisors and investors. He used the group to begin seeding and marketing the round, first with revenue numbers and progress, then with signals from existing investors like myself, then finally stepping on the gas to have all of us make introductions. In a matter of one week, I had reached out to 25 firms and booked 20 GP level meetings for this founder. Across the entire group, he booked over 80 partner meetings in two weeks with nearly every brand name firm in the valley.
The net of all of this is that the best founders ask more from their advisors and pay them less overall.
They know the value of what they are building.
Their ambition attracts the best.
Their self-worth attracts investment and involvement.
Their creativity on execution and accountability adds leverage and speed.
They realize that great people like to help, they feel valued when they can make a difference, and they too, want to make money by putting their own capital at risk.
Ultimately people are attracted to hard work, conviction, execution, accountability, and the potential to be part of an outsized success.
This type of attitude not only begets progress, but it generates momentum that can catalyze early customers and an early stage round when there isn’t much else to underwrite.
If you’re giving away equity rather than selling it, if you’re borrowing someone’s name rather than holding them accountable to helping, if you’re adding advisors but not maximizing their value, you’re missing a massive opportunity to move fast.
Systems and structure always outpace ideas.
See you Monday.