You feel you'd benefit from having a board of directors who contribute their expertise and have some stake in success.
How much equity to give them, if any?
There's no need to give up a board seat. Normally your lead investors will be taking a seat, and it could cause you issues when you try to raise.
You want to recruit some advisors who can move the needle for you with complementary skills. Ideally you just pay them cash, however being early stage may mean offering equity instead. You can do this as a vested option purchase at fair valuation. You need to be clear on what you expect from them, and obviously they must also believe their effort is going to be worth their time.
Take a look at the FAST agreement to get a better idea of how to approach the situation. https://fi.co/fast
From what I’ve seen it can occasionally be helpful around the time when investors are demanding board seats to give an actual board seat to someone independent. Good investors will actually welcome this. But until it’s needed, you don’t need to overengineer giving up control.
I've been an advisor for a number of companies in my career from pre-seed to late stage. The notion of not over-engineering giving up control is spot on.
If you even need an advisor (and you may not) then stick with the FAST template and don't overthink it. At the earliest stage an advisor can help you think critically about your product and introduce you to a lot of good connections, but you should reserve equity only for those who bring the most value.
What you're asking about sounds more like a board of advisors, which some companies do have. But the general advice is you should never give someone equity for nothing. So if you want someone to be an "advisor," ask them to invest a small amount (e.g. a $5k SAFE) in exchange for an "advisor" title.
Do NOT give away your equity or board seats. That's just dumb.
Wouldn't you be giving them equity for their advice?
Right... by giving them equity. You don't need them to invest.
What have I missed?
Giving them equity gives them skin in the game.
but you do want advisors for now, and also to start testing some to be your own future board members when you vs VCs start adding them.
two types of advisors:
- angel investors. they will give you money, and on-demand, a bit of really smart advice. mostly tiny bits as part of your monthly internal updates and your less frequent syncs (if many). some might get more involved, but you won't know who!
- paid advisors (cash or equity). I probably wouldn't do yet as you don't know which you need, and an angel can help you figure that out (ceo coach, someone for tech vs sales vs marketing vs hr ...). cash or equity. if equity, look up advice columns. but basically, give less than you'd think and for 1yr (can renew next year, but make manual, not default) and for specific mutually agreed upon tasks and meeting schedule. especially early on as it seems here, you won't know who you need, so wouldn't go heavy here
- edit: third type is your senior staff. also get VPs who have done your current + next stages before :) but generally not until raised 1M
fwiw, it does sound like you would benefit from finding 1-3 senior startup-experienced angels (successful/serial ceo who have led seed stage + series a + m&a) to invest and help guide on basics. there are good answers here, but they're without context and thus prioritization & specialization. there are a lot of generic basics they can help save time on + avoid making timebombs + give leverage, and in turn , help you identify where you need specialists, and pragmatics like when & how, until you build your own intuition & recruiting process
This really depends on the industry and how much internal expertise overlaps with the market.
You may very well need some targeted advice early on, and angels are a bit hit-and-miss, both in terms of engagement (unpredictable) and how their expertise really lines up with your needs.
If you do need short term concrete advice in a very specialized area, a consultant engagement(i.e. purely transactional) might work best. For something longer term, an advisor that might grow to something more concrete later (e.g. advisory board, actual board, exec, whatever) is probably better.
re:specialists, i think the near-term + ultimate answer is "both". my reasoning was lacking an initial unicorn advisor, an experienced startup person should be in a better position to help identify the gaps, e.g., whether needing an insider, and if so, what kind of one in particular, how to find, how to vet, etc. In contrast, most insiders, unless they've actually started their own product company, are like the blind men and the elephant, and don't realize how tiny of a view they have. as a concrete example, if doing something like gov contracts, world of diffs between say an ex-general, an ex-agency-cto, an ex-procurement officer, an ex fed vp sales, etc., and each may be individually brilliant + connected to diff networks + appropriate for helping diff co's.
a wonderful thing is for most smart people, "the first meeting is free", so not hard to get great advice from prospective people on this stuff!
I believe PG has an essay that touches on advisers.
Before the Startup: http://www.paulgraham.com/before.html
“Playing house” is something everyone interested in or already working on a startup should familiarize themselves with, be able to point out a teammate And seek to avoid.
Playing House activities are a hallmark of the rookie entrepreneur. I made these mistakes myself when I founded Gliph.
One reason to be particularly careful about this is there’s an entire class of professionals who do nothing but look for people playing house and offer the services for equity or cash that are not relevant to what make startups go.
They often hang around local non-valley startup incubators or angel groups. They are semi-retired people or in-between work themselves.
Lawyers love this type of “entrepreneur.” Because the meetings and attention drive billable hours and there’s always tax and legal work That can be found to be done.
None of these people have no idea what your users want. You’re supposed to figure that out.
If they have some gateway into your initial user base, they probably should be on the team and committed. Otherwise you should work on a different problem.
There are other ancillary activities to playing house that will disrupt your startup’s ability to succeed.
Listen to the podcast episode with Michael Seibel on the ycombinator podcast series. These problems often Are created by non-technical founders more often. Early stage, premoney, f&f or angel funded are the most vulnerable.
For mentors / advisors you can give some uplift in their equity beyond what they will get for their investment (honestly they should invest something to have some skin in the game).
An exception might be if they are rainmakers in the industry your operating in and you need them to open doors, in which case link payment to success, I wouldn't give anything upfront. If they believe in you and your business they should take the deal.
Most important of all is that an advisor should earn their spot. There’s no shortage of “room meat” who will happily sign up to “advise” a dozen companies while providing zero real value to you or your company. Good luck.
You can have all kinds of mentors and advisors who don't need to be part of the board. You don't necessarily need advisors either. If you want to someone to help you with the company, it's best to hire them or ask them to become investors and that way receive the equity.
Equity is very valuable so you shouldn't be giving it out. People should earn it or pay for it. If you must really get someone then consider very small amounts, like <1%.
I can see that this is an unpopular position here on HN, but wanted to share so it's clear that some founders do give small amounts of equity to early advisors.
Consider consultant maybe?
otherwise its a probable waste
As corporations grow larger and more mature, board members may be compensated, but that is typically cash.