What’s the best way to compensate your advisors?

Babak Nivi (Co-founder of AngelList and Venture Hacks. Previously, he was an entrepreneur-in-residence at Bessemer Venture Partners and Atlas Venture.)
Everything you ever wanted to know about advisors, Part 2 – Venture Hacks

What should I pay advisors?
Nothing—get them to pay you. Ask advisors to invest. You get money, save stock, and amplify the advisor’s social proof in the process. But lots of good advisors can’t or won’t invest

Babak Nivi (Co-founder of AngelList and Venture Hacks. Previously, he was an entrepreneur-in-residence at Bessemer Venture Partners and Atlas Venture.)
Everything you ever wanted to know about advisors, Part 2 – Venture Hacks

The normal advisor gets 0.1%-0.25% of a company’s post-Series A stock. Normal advisors do something important for the company and aren’t expected to do much beyond that. For example, they introduce the company to a key customer or investor.
Normal advisors are also assembled by naive entrepreneurs who think the mere presence of an advisory board will create social proof and help them raise money. But investors don’t take these mock advisory boar… (read more)

Babak Nivi (Co-founder of AngelList and Venture Hacks. Previously, he was an entrepreneur-in-residence at Bessemer Venture Partners and Atlas Venture.)
Everything you ever wanted to know about advisors, Part 2 – Venture Hacks

The super advisor can get as much stock as a board member: 1%-2% of a company’s post-Series A stock. Super advisors help make your company happen. They know all your prospective customers intimately. Or they raise your money for you. Or they bring you a handful of great employees. They can even add more value than an independent board member because they don’t have to deal with corporate governance.
If you find a super advisor, you want to incent… (read more)

Babak Nivi (Co-founder of AngelList and Venture Hacks. Previously, he was an entrepreneur-in-residence at Bessemer Venture Partners and Atlas Venture.)
Everything you ever wanted to know about advisors, Part 2 – Venture Hacks

Whether you’re hiring a normal advisor or super advisor:
Advisory shares are usually issued as common stock options.
The options typically vest monthly over 1-2 years with 100% single-trigger acceleration and no cliff. Although the advisor is on a vesting schedule, you should expect them to add most of their value up-front—that’s normal.
Many advisors want options they can exercise immediately—that’s fine.
If your company hasn’t raised a Seri… (read more)

Babak Nivi (Co-founder of AngelList and Venture Hacks. Previously, he was an entrepreneur-in-residence at Bessemer Venture Partners and Atlas Venture.)
Everything you ever wanted to know about advisors, Part 2 – Venture Hacks

Angels or seed investors may ask for advisory shares. They might argue that they will be more helpful than the other investors, so they should get advisory shares.
But every investor thinks he will add more value than the other investors. We would like to propose a shareholder’s code of conduct: if you think you’re doing too much, you’re probably just doing your share.
So, how do you decide whether you should give advisory shares to an investo… (read more)

Mike Crill (High-tech CFO since 1995, helped raise over $150MM in angel and venture funding)
How to Divide Equity to Startup Founders, Advisors, and Employees | thinkspace

Directors – 1/2% to 2% option. Vested 36-48 months. No cliff, no cash.
Advisors – 1/10% to 1/2% option. Vested 36-48 months. No cliff, no cash.

FounderDating (Network of talented entrepreneurs with different backgrounds and skill sets all ready to start their next company or project)
| FounderDating

Company Stage
Advisor Experience Idea/pre-launch Seed Series A Series B+
First/second time advisor .2 – .5% .1 – .4% .1 – .25% .1 – .25%
Fairly experienced .2 – .5% .25 – .4% .1 – .3% .1 – .3%
Known Entity .5 – 1% .4 – 1% .2 – .5% .1 – .4%

FounderDating (Network of talented entrepreneurs with different backgrounds and skill sets all ready to start their next company or project)
| FounderDating

Why do I have to give equity, can’t we pay cash?
Advisors, the way we’re defining them, are individuals that are able to give strategic advice based on experience as entrepreneurs, executives and/or deep expertise in a certain area. Your incentives should be aligned around growing the company and equity is the best way to do this. There is nothing wrong with project-based on hourly consultants, but FD:Advisors and this agreement does not serve t… (read more)

Jason Calacanis (CEO of Inside.com, Formerly “Entrepreneur in Action” at Sequoia Capital)
Should you give advisors equity in your startup? | Calacanis.com

Advisors ask founders to trade “advice” and “work” in exchange for equity. Founders who haven’t raised money yet typically get advisors because, well, they are unable to get investors!
Cynics (typically VCs) say things like, “if you could get investors — who advise for free — why would you get advisors who don’t put any cash at risk? Those people are not earning their equity!”
The cynical folks are right 80% of the time — the advisors don’t earn … (read more)

Jason Calacanis (CEO of Inside.com, Formerly “Entrepreneur in Action” at Sequoia Capital)
Should you give advisors equity in your startup? | Calacanis.com

Vest the shares the advisor will receive over two years (you won’t need them longer than that).
Typically they get .25 to .50 points in a startup — one point is they are a complete hero.
Put a dollar value on that equity. If you give .50 in a company worth $10m that’s $50,000 — not a ton of money depending on what they do.
Write a letter of agreement for what they will do for that equity. This should be as detailed as possible: e.g., the advis… (read more)

Founders Institute (Operates as an early-stage startup accelerator)
The Founder Institute: Helping Founders to Build Great Companies

Idea Stage Startup Stage Growth Stage
Standard: Monthly Meetings 0.25% 0.20% 0.15%
Strategic: Add Recruiting 0.50% 0.40% 0.30%
Expert: Add Contacts & Projects 1.00% 0.80% 0.60%

Founders Institute (Operates as an early-stage startup accelerator)
The Founder Institute: Helping Founders to Build Great Companies

It is not uncommon for a technology startup to have a 5% pool of equity allocated to a group of strategic advisors or an advisory board.

Steve Hoffman (Cofounder of LavaMind)
How much equity do I give to my Board of Advisors? | Founders Space

I agree the typical range is between 0.01% to 3%, depending on experience and other assets the advisor brings. It also depends on what stage your company is at. 1% of a startup without VC funding is very different from 1% of a later stage startup with VC funding. The % depends in large part on the valuation and prospects of the company.

Steve Hoffman (Cofounder of LavaMind)
How much equity do I give to my Board of Advisors? | Founders Space

Another good idea is to tie additional equity to goals. For example, you could give all your advisors 0.25% to begin with, and if they hit certain goals, like making 5 or more key introductions a month, then after the first year they get an additional 0.25%. This way you motivate your advisors to really perform.

What’s the best way to sell the right amount of equity in your fundraising round?

Babak Nivi (Co-founder of AngelList and Venture Hacks. Previously, he was an entrepreneur-in-residence at Bessemer Venture Partners and Atlas Venture.)
The Option Pool Shuffle – Venture Hacks

If you don’t keep your eyes on the option pool while you’re negotiating valuation, your investors will have you playing (and losing) a game that we like to call: Option Pool Shuffle

What’s the best way to distribute company equity?

Babak Nivi (Co-founder of AngelList and Venture Hacks. Previously, he was an entrepreneur-in-residence at Bessemer Venture Partners and Atlas Venture.)
The Option Pool Shuffle – Venture Hacks

Title Range (%) [for after raising a Series A] CEO 5 – 10 COO 2 – 5 VP 1 – 2 Independent Board Member 1 Director 0.4 – 1.25 Lead Engineer 0.5 – 1 5+ years experience Engineer 0.33 – 0.66 Manager or Junior Engineer 0.2 – 0.33

What’s the best way to distribute company equity?

Babak Nivi (Co-founder of AngelList and Venture Hacks. Previously, he was an entrepreneur-in-residence at Bessemer Venture Partners and Atlas Venture.)
Are founders really 1000x more valuable than employees? – Venture Hacks

Is it fair for founders to own about 100% of a startup while employee #1 only owns a few percent? Are founders 10-1000x more valuable than employees? The answers are: Yes, it is fair. Value doesn’t matter, timing does. When the founders start the company, it is worth approximately $0. So their equity is worth $0. Let’s say the founders work for 6 months, make progress, and then raise money at a $10M post. Then employee #1 joins and gets 1% of the… (read more)

What’s the best way to deal with rejection?

Babak Nivi (Co-founder of AngelList and Venture Hacks. Previously, he was an entrepreneur-in-residence at Bessemer Venture Partners and Atlas Venture.)
If you aren’t getting rejected on a daily basis, your goals aren’t ambitious enough | cdixon blog

People that reject me are doing me a favor. They’re not rejecting me or my product. They’re rejecting the combination of me and them together. They’re telling me we would have a bad relationship. And they’re probably right.

What’s the best way to sell the right amount of equity in your fundraising round?

Paul Graham (Co-Founder & Partner at Y Combinator)
How to Raise Money

Our rule of thumb is not to sell more than 25% in phase 2, on top of whatever you sold in phase 1, which should be less than 15%.

Sam Altman (President at Y Combinator)
Fundraising Advice for YC Companies – Y Combinator Posthaven

You should aim to sell only about 20% of the company in your seed round (though 25% is ok if you’re raising a ‘large’–say more than $2. 5 million–seed round). You should raise enough money to get to your next significant milestone.

Slava Akhmechet (Founder at RethinkDB)
57 startup lessons

If you have to give away more than 15% of the company at any given fundraising round, your company didn’t germinate correctly. It’s salvageable but not ideal.

Naval Ravikant (Founder, CEO & Co – Maintainer at AngelList)
“The Anatomy of a Fundable Startup”, by Naval Ravikant (Founder, AngelList) on Vimeo

My rule of thumb is 20% for a seed round. Anything more than that and people are going to be worried [about if] you are going to be incented after 2 or three more rounds of financing.

Mark Suster (Managing Partner at Upfront Ventures)
Founder Showcase – Mark Suster Keynote on Vimeo

VCs want meaningful ownership. The fairway for a round of venture capital is 25-33% of your company. If you’re a better negotiator, if you’re hotter, if you have more people interested you can get it down to 18%-22%.

Paul Graham (Co-Founder & Partner at Y Combinator)
The Equity Equation

Greg Mcadoo from Sequoia recently said at a YC dinner that when Sequoia invests alone they like to take about 30% of a company

Babak Nivi (Co-founder of AngelList and Venture Hacks. Previously, he was an entrepreneur-in-residence at Bessemer Venture Partners and Atlas Venture.)
The Option Pool Shuffle – Venture Hacks

If you don’t keep your eyes on the option pool while you’re negotiating valuation, your investors will have you playing (and losing) a game that we like to call: Option Pool Shuffle

Jason Lemkin (Managing Director at Storm Ventures, SaaStr.com)
Jason M. Lemkin’s answer to For a new startup, what would be the ‘acceptable’ equity percentage given to VC (Series A financing)? – Quora

Typically, Seed Stage VCs will want to write smaller checks to achieve at least a 10% target ownership. Sometimes more. If you need more money, they’ll often want to bring in a second Seed Fund to buy a second 10%.
Typically, Larger Funds will want to own as much as 25%. Themselves. And they’ll write a larger check to get it, and sometimes, pay a higher per share price.

Dharmesh Shah (Co-founder and CTO of HubSpot)
Happy Birthday HubSpot! 9 Lessons From Our First 9 Years

Don’t minimize dilution, maximize impact. If you go out and raise outside funding, resist the temptation to worry too much about valuation (and minimizing dilution). In the grand scheme of things, as long as you’re getting a fair deal, marginal differences in dilution won’t matter. What will matter more is the degree to which you can have an impact (however you measure that). You’re probably going to be happier owning 5% of something great tha… (read more)

What’s the best way to distribute employee equity?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Valuation and Option Pool – AVC

One of the more contentious things in the negotiation between an entrepreneur and a VC over a financing, particularly an early stage financing, is the inclusion of an option pool in the pre-money valuation. As my friend Mark Pincus likes to say, “it’s just another way to lower the price”.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Valuation and Option Pool – AVC

Let’s say that the VC’s term sheet says that a 15% “fully diluted post money” option pool needs to be in the pre-money valuation. What that means is that the investor wants 15% of the company, after the financing is closed, to be in an option pool that has not been granted to anyone. … The bottom line is the deal I described leaves the entrepreneur and his/her shareholders with 65% of the company after the financing, the VC investor will own 20… (read more)

Sam Altman (President at Y Combinator)
Employee Equity – Sam Altman

Its very difficult to put precise numbers on this because the specifics of every situation matter so much. I’ve seen some startups offer 5 or 6 year vesting schedules. To compensate for this, they offer above-market grants. Another structure I’ve seen is back-weighted vesting. For example, 10% of the grant vests after the first year, and then 20%, 30%, 40% in the following years.

Sam Altman (President at Y Combinator)
The Engineer Crunch – Sam Altman

Granting equity should be easy to do. I have never seen a startup regret being generous with equity for their early employees. I’ve noticed that mission-oriented companies have a much easier time recruiting.

Paul Graham (Co-Founder & Partner at Y Combinator)
The Equity Equation

An investor wants to give you money for a certain percentage of your startup. Should you take it? You’re about to hire your first employee. How much stock should you give him? These are some of the hardest questions founders face. And yet both have the same answer: 1/(1 – n) Whenever you’re trading stock in your company for anything, whether it’s money or an employee or a deal with another company, the test for whether to do it is the same. You … (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Employee Equity: Too Little? – AVC

Since I started in VC, the percentage of a company that non-founder employees owned was always in the 15-20% range after the team is fully built out. In recent years, I have seen that number creep up to the 20-25% range and if you extrapolate current trends out a few years, it could easily be 30%.

Babak Nivi (Co-founder of AngelList and Venture Hacks. Previously, he was an entrepreneur-in-residence at Bessemer Venture Partners and Atlas Venture.)
The Option Pool Shuffle – Venture Hacks

Title Range (%) [for after raising a Series A] CEO 5 – 10
COO 2 – 5
VP 1 – 2
Independent Board Member 1
Director 0.4 – 1.25
Lead Engineer 0.5 – 1
5+ years experience Engineer 0.33 – 0.66
Manager or Junior Engineer 0.2 – 0.33

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Options and Offer Letters – AVC

What I generally suggest is that management have a standard options grant. It could be as simple as “everyone gets at least 1000 shares when they join, important role players get 5000 shares, directors get 10,000 shares, software engineers get 10,000 shares, senior software engineers get 20,000 shares, VPs get 50,000 shares. C level gets 100,000 shares” I just made that up. You should make one that makes sense to you.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Options and Offer Letters – AVC

I also suggest building an options budget. To do this you take your standard grant schedule, and then map it to your hiring and retention plan (I suggest granting options to current employees every two years as part of a retention plan) and then you will have an options budget for the next few years. That is a great thing to have.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Employee Equity – AVC

Where Andy [Rachleff] and I differ a bit is how to calculate how much equity should be granted. Andy suggests using market comps. I don’t like doing that because 0.1% of one company can be worth a lot more or less than 0.1% of another company. I prefer to issue equity based on a multiple of current cash comp divided by the current valuation of the business. I lay that all out in my Skillshare class.
While I don’t call out promotion and performan… (read more)

Sam Altman (President at Y Combinator)
Employee Equity – Sam Altman

Startups should give employees more stock. Value is created over many, many years. Founders certainly deserve a huge premium for starting the earliest, but probably not 100 or 200x what employee number 5 gets. Additionally, companies can now get more done with less people.

Sam Altman (President at Y Combinator)
Employee Equity – Sam Altman

As an extremely rough stab at actual numbers, I think a company ought to be giving at least 10% in total to the first 10 employees, 5% to the next 20, and 5% to the next 50. In practice, the optimal numbers may be much higher.

Babak Nivi (Co-founder of AngelList and Venture Hacks. Previously, he was an entrepreneur-in-residence at Bessemer Venture Partners and Atlas Venture.)
Are founders really 1000x more valuable than employees? – Venture Hacks

Is it fair for founders to own about 100% of a startup while employee #1 only owns a few percent? Are founders 10-1000x more valuable than employees? The answers are: Yes, it is fair. Value doesn’t matter, timing does. When the founders start the company, it is worth approximately $0. So their equity is worth $0. Let’s say the founders work for 6 months, make progress, and then raise money at a $10M post. Then employee #1 joins and gets 1% of the… (read more)

Ben Yoskovitz (VP Product at VarageSale, VP Product at GoInstant (acquired by Salesforce), Author of Lean Analytics)
Changing Equity Structures for Early Startup Employees

0.5-1% is just not a lot. Those first few hires – done correctly – will be so insanely critical for the success of your startup; I believe they deserve more.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Sizing Option Pools In Connection With Financings – AVC

Here’s a formula I like to use. Take the cumulative salaries of all the hires you need to make betwen the current financing and the next one. Let’s say it is five employees at an average of $75,000. Then that number is $375,000. Then divide that number by the post-money valuation, in this case $5mm. That gives you 7.5%. That’s the size of the option pool you’ll need. And it is conservative because I don’t recommend giving options equal to the dol… (read more)

Leo Polovets (General Partner @ Susa Ventures)
Analyzing AngelList Job Postings, Part 2: Salary and Equity Benchmarks · Coding VC

Equity:
Hire #1: 2% – 3% of equity
Hires #2 through #5: 1% – 2%
Hires #6 and #7: 0.5% – 1%
Hires #8 through #14: 0.4% – 0.8%
Hires #15 through #19: 0.3% – 0.7%
Hires #21 through #27: 0.25% – 0.6%
Hires #28 through #34: 0.25% – 0.5%
These ranges indicate the maximum equity amounts offered by companies.

Joel Spolsky (CEO @ Stack Exchange)
How much equity should a partner with a short-term commitment be entitled to? – Startups Stack Exchange

The most important principle: Fairness, and the perception of fairness, is much more valuable than owning a large stake. Almost everything that can go wrong in a startup will go wrong, and one of the biggest things that can go wrong is huge, angry, shouting matches between the founders as to who worked harder, who owns more, whose idea was it anyway, etc.

Joel Spolsky (CEO @ Stack Exchange)
How much equity should a partner with a short-term commitment be entitled to? – Startups Stack Exchange

Here’s the principle. As your company grows, you tend to add people in “layers”. The top layer is the first founder or founders. The second layer is the first real employees. For many companies, each “layer” will be approximately one year long. By the time your company is big enough to sell to Google or go public or whatever, you probably have about 6 layers: the founders and roughly five layers of employees. Each successive layer is larger. Ther… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Employee Equity: How Much? – AVC

For your first key hires, three, five, maybe as much as ten, you will probably not be able to use any kind of formula. Getting someone to join your dream before it is much of anything is an art not a science. And the amount of equity you need to grant to accomplish these hires is also an art and most certainly not a science.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Employee Equity: How Much? – AVC

Here are our default brackets:
Senior Team: 0.5x
Director Level: 0.25x
Key Functions: 0.1x
All Others: 0.05x

Then you multiply the employee’s base salary by the multiplier to get to a dollar value of equity. Let’s say your VP Product is making $175k per year. Then the dollar value of equity you offer them is 0.5 x $175k, which is equal to $87.5k. Let’s say a director level product person is making $125k. Then the dollar value of equity y… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures; Investor in Twitter, Kickstarter, Etsy…)
Employee Equity: Dilution – AVC

The typical dilution path for founders and other holders of employee equity goes like this:
1) Founders start company and own 100% of the business in founders stock
2) Founders issue 5-10% of the company to the early employees they hire. This can be done in options but is often done in the form of restricted stock. Sometimes they even use “”founders stock”” for these hires. Let’s use 7.5% for our rolling dilution calculation. At this point the f… (read more)

Ryan Allis (Chairman & Co-Founder @ Connect, Former CEO of iContact (sold $170M))
Ryan Allis’s 1,284 slides on how to win life, Part 2 – Business Insider

What’s the best way to deal with rejection?

Babak Nivi (Co-founder of AngelList and Venture Hacks. Previously, he was an entrepreneur-in-residence at Bessemer Venture Partners and Atlas Venture.)
If you aren’t getting rejected on a daily basis, your goals aren’t ambitious enough | cdixon blog

People that reject me are doing me a favor. They’re not rejecting me or my product. They’re rejecting the combination of me and them together. They’re telling me we would have a bad relationship. And they’re probably right.

Chris Dixon (General Partner @ Andreessen Horowitz)
If you aren’t getting rejected on a daily basis, your goals aren’t ambitious enough | cdixon blog

In one case a friend who tried to help called me to console me. He seemed surprised when I told him: “no worries – this is a daily occurrence – we’ll just keep trying. ” If you aren’t getting rejected on a daily basis, your goals aren’t ambitious enoug