How much equity should an advisor be given?

It’s an age-old scenario: You’re building a company, you have a product idea, and you’ve got the framework laid out in your head, but you want some expert advice and guidance on how to take the next steps. So, you go out to find a veteran entrepreneur, ask her to be an advisor in your fledgling company … and then what?

This is where a lot of founders get stuck. Entrepreneurs want to compensate their mentors and advisors for the time they dedicate to helping their businesses grow, but they have no idea how much equity to offer. Not to mention, once the founder and advisor have nominally agreed to a relationship, law firms enter the mix and seed the new advisor with a mountain of paperwork — legal agreements, options agreements — documents stuffed with legalese and binding statements. Just this hassle alone is sometimes enough to scare an advisor away from the relationship, at which point both sides lose.

So, the Founder Institute has developed a solution to this long-standing pain in the ass that all startups experience. After speaking with dozens of founders, mentors, advisors, and startup teams, the startup accelerator and network is publicly releasing what it calls the “Founder Advisor Standard Template” (FAST), a free document designed to provide founders and advisors with a simple legal framework to formalize their relationship without all the legal chaos.

“We’ve been seeing at least one post per week on TheFunded concerning mentor compensation”, said Adeo Ressi, the founder of both Founder Institute and TheFunded.com (a site focused on revealing the inside truths of the Venture Capital world). Having to invent ad hoc terms to work together, negotiating terms, and throwing money into hiring lawyers can really hamstring the formation of productive founder-advisor relationships — something that can really make or break a startup in its early stages.

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