How much equity should advisory shares represent?

Advisory shares should pay for a defined contribution, over a defined period, at a percentage your cap table can absorb. They should never be a thank-you gift for an impressive name. A founder who cannot say what an advisor will do, how often she will do it, and how the company will know it happened is not ready to issue equity.

For most US startups, the sensible range is measured in fractions of one percent, not whole percentage points. Stage matters because the same percentage becomes more expensive as the company grows. Scope matters more: a monthly call is not worth the same grant as opening a regulated market, recruiting an executive, or working through a sale. Put the work in writing, vest the grant as the work happens, and preserve a clean way to stop.

Advisory shares are compensation, not a special security

Advisory shares are ordinary company equity granted in exchange for advisory services. The phrase describes why the company issued the equity, not a special class of stock with its own rights. In a US startup, an advisor usually receives restricted common stock or nonqualified stock options under the same equity plan used for other service providers.

That distinction prevents a common mess. A founder may promise someone 0.5% in an email and assume the promise itself creates ownership. It does not. The board normally must approve the grant, the company needs enough shares reserved under its equity plan, and the advisor must sign the relevant grant documents. A percentage discussed in January can turn into a different economic deal if the company converts SAFEs, expands its option pool, or closes a financing before anyone calculates the share number.

Equity also does not make an advisor a director. A director has formal governance duties and voting authority under corporate law. An advisor has only the rights stated in the advisory agreement and the underlying stock or option documents. Do not call an informal group a board of directors, and do not give an advisor authority to bind the company unless you intend to create that authority.

The Securities and Exchange Commission describes Rule 701 as an exemption that private, non-reporting companies may use for compensatory securities issued to employees, consultants, and advisors. For advisors, the rule covers natural persons providing bona fide services, and it excludes services connected to raising capital or promoting a market for the company's securities. That last limit matters. Someone whose promised contribution is simply selling your financing round may not fit the exemption you expected to use. Your lawyer should confirm the federal exemption, state securities filings, equity plan authority, and board process before the grant date.

Hire an advisor only for work you can name

An advisor is worth equity when she fills a recurring, specific gap that the founding team cannot cheaply fill another way. Prestige, a large contact list, and friendly encouragement do not meet that test. The work must be concrete enough that both sides can recognize delivery.

Start with the next 12 to 24 months, not the advisor's biography. A company entering hospitals might need monthly review of procurement strategy plus introductions to three qualified buyers. A founder hiring her first vice president of sales might need help defining the role, interviewing finalists, and reviewing the new leader's first plan. Those are advisory jobs. A one-time review of a pitch deck is a favor or a paid project. A person managing a launch every week is probably a consultant or fractional executive, and cash plus a different equity package may fit better.

I use a four-part test before discussing a percentage:

• The company can state the business outcome the advisor will help reach.
• The advisor can name the actions she will take and the time she can actually give.
• The founders have an owner for scheduling, preparing questions, and following up.
• Both sides can stop without pretending a dormant relationship still has value.

A trial period is often better than immediate equity. Work together for four to eight weeks on one real problem, with cash if the assignment warrants it. You will learn whether the advisor responds, understands the business, and gives advice that survives contact with the team. Do not grant equity merely because an investor asked who sits on the advisory board. A row of famous names does not fix distribution, hiring, pricing, or product judgment.

Also ask about conflicts before the relationship starts. Advisors often work with several companies. That can be useful, but it becomes dangerous when they advise a direct competitor, hold confidential information from a former employer, or promise introductions they cannot ethically make. Define the excluded companies, subjects, or accounts in writing instead of relying on an awkward conversation after information has moved.

Market data gives you a range, not an answer

Current benchmarks put most grants below 1%, and the percentage declines as the company matures. Carta reports that, in its H1 2024 data, the median fully diluted advisor grant was 0.21% at pre-seed, 0.12% at seed, and 0.05% at Series A. Carta separately reported a 0.25% pre-seed median and a 1% 90th percentile in a January 2025 data note. Different datasets and cuts can produce slightly different medians, which is precisely why a benchmark should frame a negotiation rather than decide it.

Two other published frameworks help establish the boundaries. Cooley GO says a 24-month advisor option commonly covers 0.15% to 0.75% of fully diluted stock, depending on activity, importance, and company maturity. The Founder Institute's FAST framework ranges from 0.25% for standard monthly help at the idea stage to 1% for expert help that includes contacts and projects; at its growth stage, the comparable figures are 0.15% and 0.60%. FAST is deliberately simple. Use it as a conversation aid, then tailor the grant to the work and have counsel adapt the documents.

A practical negotiating range for a typical grant looks like this:

• At idea or pre-seed, light recurring advice often supports 0.10% to 0.25%, while a substantial hands-on contribution may support 0.25% to 1.00%.
• At seed, light recurring advice often supports 0.05% to 0.20%, while a substantial hands-on contribution may support 0.20% to 0.50%.
• At Series A and later, light recurring advice often supports 0.02% to 0.10%, while a substantial hands-on contribution may support 0.10% to 0.25%.

These are negotiating ranges, not legal standards, and the top end should require unusual evidence. If an advisor asks for 1% of a pre-seed company, ask what makes the engagement comparable to the top end of published data. A weekly operating role, proprietary access that can change the business, or responsibility for a defined executive search may justify more. Monthly general advice usually does not. At Series A, 1% for an advisor approaches territory founders normally reserve for consequential operating hires.

Cash changes the answer. If the company pays a market consulting rate, the equity portion should fall. If the advisor absorbs sustained work without cash, it may rise. Do not pretend equity is free because no money leaves the bank today. Every grant dilutes existing and future holders, and an oversized grant stays on the cap table long after the warm introduction has been forgotten.

Quote the percentage on a fully diluted basis

State advisor equity as a percentage of the company's fully diluted capitalization on a specified measurement date, then convert it to an exact number of shares or options for board approval. A bare percentage is incomplete because people can calculate the denominator several ways.

A fully diluted count commonly includes outstanding common and preferred shares, granted options and other awards, and the remaining shares reserved in the option pool. Depending on the deal and the company's documents, it may also account for warrants and securities that convert into equity. Your lawyer and cap table administrator should confirm the denominator used for this grant. Do not improvise around SAFEs or convertible notes; their conversion can depend on financing terms that do not yet exist.

Consider a company with 8,000,000 issued shares, 700,000 granted options, and 1,300,000 ungranted shares in its approved option pool. Its fully diluted count for this simplified example is 10,000,000. A 0.25% grant equals 25,000 options:

fully diluted shares = 8,000,000 + 700,000 + 1,300,000
fully diluted shares = 10,000,000
advisor grant = 10,000,000 x 0.25%
advisor grant = 25,000 options

This is the first of two artifacts I would put in the deal file. Record the calculation date, every category included in the denominator, the percentage discussed, the final share number, and the board approval date. If a financing closes between the handshake and the approval, recalculate or state clearly that the agreed number will not change. Silence invites each side to remember a different bargain.

The percentage will dilute in later financings unless the agreement grants anti-dilution rights, which advisor agreements normally should not. If the advisor receives 0.25% today and the company later issues more shares, her percentage falls alongside other common holders. Explain that before signature. Never promise that an advisor will permanently own a fixed percentage unless counsel has modeled the obligation and the board knowingly accepts it. A top-up promise can create repeated grants, tax work, accounting expense, and friction with investors.

Restricted stock and options create different bills

Very early companies may issue restricted stock, while companies with an established fair market value more often grant nonqualified stock options. The right choice depends on the company's stage, the equity plan, the advisor's cash position, and tax advice. The label changes when the advisor owns stock and when tax may arise.

With restricted stock, the advisor acquires shares at grant, usually subject to the company's right to repurchase unvested shares when service ends. If the stock has a very low fair market value, purchasing it may cost little. The advisor becomes a stockholder immediately, subject to the governing documents, transfer restrictions, and whatever voting or information rights attach to the shares. The company must decide whether that administrative burden makes sense for a short advisory relationship.

Section 83(b) of the Internal Revenue Code can matter when someone receives substantially nonvested stock for services. The IRS says the election generally must be filed no later than 30 days after the property transfer. The election can move compensation income to the transfer date, based on the value then, but it carries risk: if the shares never vest or lose value, the taxpayer may not recover the tax already paid. An 83(b) election generally applies to transferred property, not to the mere grant of a typical option with no readily ascertainable value. Give the advisor prompt notice and tell her to obtain personal tax advice; the company should not decide the election for her.

An option gives the advisor a right to buy shares later at a fixed exercise price. Because advisors are not employees, they generally receive nonqualified stock options, not incentive stock options. IRS Publication 525 explains that when a nonstatutory option lacks a readily determinable value at grant, tax generally arises upon exercise on the spread between the stock's fair market value and the amount paid, subject to the restricted-property rules. A later stock sale can create a separate capital gain or loss.

Set the exercise price at no less than fair market value on the actual grant date, based on a defensible valuation. IRS guidance says a discounted option can fall under Section 409A, while a non-discounted option without another deferral feature generally does not. Backdating the board consent or recycling an old valuation after a material event is not tidy paperwork; it can change the tax treatment.

Two years with monthly vesting is the useful default

Most advisor grants should vest monthly over 24 months, often without a cliff or with a short three-month cliff. Carta and Cooley GO both describe two-year monthly vesting as common. The schedule fits the usual life of advisory work better than the four-year schedule companies use for employees.

A cliff protects the company during a trial, but a one-year cliff is usually excessive for an advisor who starts contributing immediately. If you need a full year to decide whether any value arrived, the scope is too vague. A short cliff can make sense when the first assignment takes several meetings to complete. With no cliff, one twenty-fourth of the grant vests each month and either side can stop cleanly.

Time-based vesting suits recurring judgment: a monthly product review, hiring interviews as needed, or regular coaching for a founder entering a new market. Milestone vesting suits a result that both parties can observe. Good milestones depend on the advisor's work, such as completing a written channel plan or delivering a defined recruiting process. Bad milestones depend on outsiders or company execution, such as closing a financing, achieving revenue, or securing a customer after an introduction. Those outcomes can fail even when the advisor performs. They can also tempt everyone to argue about causation.

Hybrid schedules work when the engagement contains both kinds of contribution. You might vest half monthly over two years and reserve half for two named projects. Keep the arithmetic simple. Six tiny milestones create more administration than accountability. State who confirms completion, what evidence counts, and what happens if the company abandons the project.

Avoid automatic acceleration merely because the company is acquired. An advisor who has completed most of the agreed work may reasonably ask for some acceleration, but blanket acceleration pays for future months that will never occur. If you agree to acceleration, specify whether a sale alone triggers it or whether the buyer must also end the engagement, and cap the number of accelerated months. Investors and acquirers will read the actual clause, not the friendly explanation that accompanied it.

The agreement should make the work auditable

A sound advisor agreement states the services, cadence, equity terms, confidentiality duties, intellectual property treatment, conflicts, public-name permission, term, and termination mechanics. It should work together with the equity plan and grant notice rather than trying to replace them.

The second artifact is a one-page deal memo prepared before counsel drafts or reviews the agreement:

Role: Go-to-market advisor for US hospital sales
Term: 24 months, terminable by either party on 10 days' notice
Cadence: One 60-minute meeting each month plus email review
Projects: Review buyer map; interview VP Sales finalists
Grant: 25,000 NSOs, stated as 0.25% of 10,000,000 fully diluted shares
Vesting: Monthly over 24 months, no cliff
Expenses: Preapproval required; receipts due within 30 days
Conflicts: Disclose work for named direct competitors
Publicity: Company needs written approval before using advisor's name

That memo prevents the most expensive drafting error: lawyers receiving a vague request to give someone half a percent and having to discover the commercial deal through email. It also exposes mismatches early. If the advisor expects weekly calls and the founder expects one call per quarter, the equity percentage is not yet the issue.

The services clause should name decisions and deliverables without turning advice into employment. Include expected meeting frequency, reasonable preparation, and any defined project. Do not require unlimited availability. State that the advisor is an independent contractor, has no power to bind the company, supplies her own methods, and remains responsible for her taxes, subject to counsel's classification review. A contract label cannot cure a relationship that operates like employment.

Confidentiality terms should cover company information while preserving the advisor's right to use general skill and experience. Intellectual property language should assign work product created specifically for the company, while excluding the advisor's earlier materials and general tools. If she will receive sensitive customer, health, financial, or personnel data, narrow access to what the assignment needs and use the company's security process. An NDA does not excuse careless access.

Ask for disclosure of competing engagements and set a workable remedy. A sweeping ban on advising anyone in the industry will repel experienced people and may be unenforceable. A focused restriction on named competitors, combined with information barriers and prompt disclosure, addresses the actual risk. State whether the company may display the advisor's name, biography, or image. Founders sometimes keep a departed advisor on the website because removing the name feels embarrassing. That creates a false public record and can prolong a later dispute about when service ended.

Approval and recordkeeping finish the grant

The grant is not finished when the advisor signs the services agreement. The company must complete its corporate approval, securities compliance, grant paperwork, cap table entry, and tax reporting process. Treat each as part of the transaction, not cleanup for the next financing.

The board consent should approve the recipient, award type, exact share count, vesting commencement date, schedule, exercise price for an option, and form documents. The company should issue the grant under an approved equity plan when the plan requires it and confirm that enough shares remain available. The grant date should match the date on which the authorized body actually approves the complete terms.

Rule 701 may provide the federal registration exemption for a private company compensating an eligible natural-person advisor for bona fide services. It does not eliminate state securities requirements, disclosure duties, or the need to check whether the advisor's work falls within the rule. The SEC also warns that securities issued under Rule 701 are restricted securities and cannot simply be freely traded. Keep the exemption analysis with the signed documents.

The cap table should show the grant once, under one legal name, with the correct vesting start and exercise price. Calendar the vesting end and any option expiration. Send copies of all signed documents to the advisor. If restricted stock changes hands, record the purchase price and payment. If an 83(b) election may apply, provide the company information promptly and retain any copy the advisor sends, while avoiding a promise that the company has filed it for her.

A founder can use Sisters to ask women who have handled advisor grants how they scoped the work and where the relationship later broke down. Peer experience is especially useful before the terms reach counsel, because it reveals the operational questions a legal template cannot answer.

Manage the relationship or stop paying for it

Vesting should correspond to a live advisory relationship, so founders need a small operating rhythm. Send a focused agenda before each meeting, record decisions and introductions, and review the scope every quarter. The purpose is not to grade the advisor. It is to see whether the company is still presenting problems that fit her expertise.

Keep a simple log with the meeting date, topic, agreed follow-up, and completion status. When an advisor makes an introduction, record the introduction rather than crediting her forever for anything the relationship later produces. When she reviews a candidate, capture the judgment that affected the decision. This record helps the founder prepare better sessions and gives both sides facts if they later discuss a renewal or early end.

Do not let social discomfort turn two years of vesting into passive dilution. Missed calls happen, and company priorities change. A repeated pattern of cancellations, generic advice, undisclosed conflicts, or work delegated to someone else calls for a direct reset. State what the agreement requires, what has not happened, and whether a narrower scope would still help. Give a short cure period if the contract provides one. Then end the relationship if the work no longer merits the grant.

Renewal should be a new decision. An advisor who remains useful after 24 months may receive a new grant for a new scope, priced against the company's current stage and fair market value. Do not quietly extend old vesting terms or promise a top-up to the original percentage. The company is different, the contribution is different, and the new board approval should say so.

Ending an advisor agreement takes more than an email

End the services and equity mechanics on the same effective date, then tell the advisor exactly what vested and what choices remain. A polite email without cap table action can leave options vesting, website claims live, and confidential access open.

First, read the termination clause, equity plan, grant notice, and any side letter together. Confirm who may give notice, the required delivery method, any notice or cure period, and whether the company has grounds for immediate termination. Obtain the necessary internal approval. Send a written notice that states the effective date and separates the end of services from any continuing obligations such as confidentiality.

Next, calculate vesting through that date under the documents. For restricted stock, the company may need to exercise a repurchase right over unvested shares within a stated period and pay the contract price. For options, unvested options normally stop vesting and terminate. Vested options may remain exercisable only for the post-termination window in the plan or grant. Cooley GO notes that many startup plans apply a three-month exercise window to NSOs even though the tax rule requiring that window concerns ISO treatment. Advisors can negotiate a longer NSO window before signing, but the company should not promise an extension at termination without checking the plan, tax consequences, accounting, and board authority.

Give the advisor a closing statement with the vested share or option count, exercise price, last exercise date, exercise instructions, and contact for tax forms. Do not provide personal tax advice. Recover company property, remove system access, update the website and pitch materials, remind both sides of confidentiality and IP duties, and record the termination in the cap table system. Pay approved expenses or cash fees that remain due.

Finally, decide whether the company may still describe the person as a former advisor. Get consent if the agreement requires it. The clean ending protects the relationship as much as it protects the cap table: both sides leave with the same dates, numbers, and record. If your current advisor list contains someone you have not spoken to in six months, inspect the documents today. Delay does not preserve goodwill; it only lets another vesting date pass.