Friday Q&A: How to Compensate Startup Advisors

Every Friday, we’re answering your questions about business, startups, customer success and more.

Happy Friday!

This week’s question comes from SS, who asks:

I’ve written about finding the right advisors and maintaining great relationships with them, but compensation isn’t something we’ve addressed yet.

And that’s because there’s no blanket advice here that’s going to work for everybody.

First of all, we’re not talking about cash compensation here. For advisors that you actually want, you won’t be able to offer enough cash to make things interesting for them (that is, they’re already financially successful). Anyone you pay for advice without having them invested in your success is simply a consultant.

Good advisors might not even ask for compensation at all, though it’s good practice, if they’ve consistently been delivering value for your company, to formalize the relationship with equity shares.

The two most important factors are:

1. Value: How involved will they be? How will their expertise and advice translate into value for your business? What, exactly, do you imagine that value will be?
2. Leverage: Who’s getting more out of the relationship? Are you a fast-growing company with traction that many people want to help in exchange for equity? Or are you unproven, pre-launch and desperate for an expert to come in and help you get things off of the ground? The latter company should be compensating the right advisors far more heavily than the former one.

I’ve seen equity compensation ranging anywhere from .25% to 1% for very valuable advisors.

But my personal preference—and again, this doesn’t mean it’s right for everyone—is to have them invest in your company, as we did, to take the relationship even further.