Startup advisor agreement: everything you need to know

How much equity should an advisor get?

Most advisors receive between 0.25% and 1% of fully diluted equity. Where an advisor falls in that range depends on how involved they will be, how much time they commit, how specialized their expertise is and how early the company is. An advisor who takes a monthly call sits at the low end; one who is close to a part-time executive sits at the high end. Always express the grant as an exact number of shares. See Startup Advisor Compensation for more on sizing.

Should advisors get restricted stock or stock options?

It depends on the company’s fair market value. While the value is nominal, restricted stock is usually best: the advisor buys the shares at fair market value, owns them from day one and files an 83(b) election within 30 days. Once a 409A valuation sets a meaningful price, buying stock up front gets expensive, so options are the better tool. Advisors aren’t employees, so their options are NSOs. See Restricted Stock vs Stock Options, NSO vs ISO and the 83(b) Election.

How should advisor equity vest?

The most common schedule is monthly vesting over two years with no cliff. Some companies add a short cliff, often three to six months, to give the founders time to see whether the advisor is adding value. Where an advisor’s value is a specific result, such as an introduction that closes a customer, milestone-based vesting can fit better. In every case, the advisor keeps what has vested if the relationship ends and the company can repurchase or cancel the rest. See Vesting Schedule.

What documents do I need?

Two. The advisor agreement works much like an independent contractor agreement. It covers the scope of the advisor’s role, the time commitment, confidentiality, assignment of any IP the advisor creates for the company and the equity the company will grant. If you want something specific from the advisor, such as hiring help or fundraising introductions, say so.

The equity award is a separate document approved by the board. For restricted stock, that is a restricted stock purchase agreement. For options, it is a stock option grant under the company’s equity plan.

Many startups use the FAST agreement published by the Founder Institute. We don’t recommend it. Its grid of equity percentages by stage and involvement tends to create confusion and unnecessary debates about equity. A short advisor agreement plus a proper equity award is clearer. It is still better than having no agreement at all. See our Advisor Agreement service.

Do informal advisors need an agreement?

Yes, if they receive equity, see confidential information or contribute anything the company might want to own, such as code, designs or materials. Without a signed agreement, the company may not own that work. If someone simply takes the occasional coffee and shares an opinion, a handshake is fine.

Why does an advisor need to assign IP, and what if they won’t?

Even an advisor who never writes a line of code can end up with a claim to your IP. Under US patent law, anyone who contributes significantly to the idea behind a patent claim is a co-inventor, and a technical suggestion made on an advisory call can be enough. A co-inventor who hasn’t assigned their rights is a co-owner of the patent, and each co-owner can use the invention and license it to others, including your competitors, without the other owners’ consent. The assignment clause in the advisor agreement is what keeps that from happening.

Some advisors hesitate to sign, usually because of obligations to an employer, a university or other startups they advise. Full assignment of anything the advisor creates or suggests in the course of their work for the company is the default, and most advisors accept it once the scope is clear. If an advisor won’t, the lightest fallback is a narrow feedback clause: the company owns the ideas, suggestions and feedback the advisor gives about its business, products and technology, and anything based on its confidential information, and the advisor keeps everything else. Anything weaker than that, such as a license in place of ownership, deserves a lawyer’s review, because the company should own its core IP outright. See Who Owns Startup IP?

What if your advisor works at a university or research institute?

Then the institution has a say in the deal. Most universities, academic medical centers and research institutes have outside-activity and conflict-of-interest policies for their faculty and staff, and many require their own terms to be added to your advisor agreement, often with a clause that their terms win if the two conflict. Those terms commonly cover who owns IP the advisor develops, especially anything made with the institution’s labs, equipment, students or grant funding; limits on using institution resources for the company; caps on how much time the advisor can spend; and rules on how you can use the advisor’s name and the institution’s name in your website, pitch deck and press.

The IP terms matter most. If the institution can claim inventions that come out of the advisor’s work with you, the assignment in your agreement may not give you what you think. In practice, keep the advisor’s role to advice and strategy, keep experiments and development in your own facilities, and if you need the advisor’s lab to do work for you, structure it as a sponsored research agreement or a license from the institution’s technology transfer office, not as advisor services.

Plan for time. Requested changes may go through the technology transfer office, the conflict-of-interest office and the institution’s lawyers, and some institutions treat their terms as non-negotiable. Ask the advisor for the institution’s policy and any required addendum before you send your agreement. This matters most for biotech and deep-tech companies, where many of the best advisors hold academic appointments.

How are advisory board members different from directors?

An advisory board has no legal authority. Each member is simply an advisor with their own advisor agreement and equity grant, usually at the lower end of the advisor range. A director sits on the board of directors, votes on corporate decisions and owes fiduciary duties to the company and its stockholders. Don’t confuse the two, and don’t call advisors “board members” in your documents. See Startup Board Member Compensation.

Should I tell advisors what their equity is worth?

Give them the number of shares, the percentage of fully diluted equity and the current fair market value or 409A price. Don’t quote a projected value based on a future exit or the last round’s preferred price. Those numbers aren’t what the advisor’s common stock is worth, and they set expectations you may not meet.

What should I do about inactive advisors before a priced round?

Investors will review every equity grant in diligence. If an advisor has stopped contributing but their equity is still vesting, end the advisor agreement under its termination clause, which stops vesting, and repurchase or cancel any unvested shares or options under the grant documents. Doing this before the round keeps your cap table clean.

How should I negotiate equity with an advisor?

Be clear about the role, the expected time commitment and how the grant vests, and put it in writing. Be honest about the company’s stage and finances. Research what comparable advisors receive so your offer is fair. And remember that many good advisors value the work and the relationship as much as the equity.

If you’d like help with an advisor agreement or grant, contact us.