The guide to advisor shares - Carta: Paying Attention

The guide to advisor shares - Carta: Paying Attention

Maximizing the Value of Advisor Shares: A Guide to Selecting and Compensating Advisors

Introduction:
When it comes to building a successful company, having the right advisors on board can make a significant difference. However, it is essential to approach advisor shares strategically to ensure that both parties benefit from the relationship. In this guide, we will explore the key considerations for creating a vesting schedule, selecting the right advisors, and establishing a mutually beneficial agreement. Additionally, we will delve into the importance of paying attention and filtering information effectively to make the most out of your reading and learning experiences.

Vesting Schedule for Advisors:
Similar to employees, implementing a vesting schedule for advisor shares is crucial. Most agreements follow a two-year schedule, with monthly vesting and no cliff. However, before committing to equity compensation, it is advisable to gauge the advisor's commitment by asking if they would consider investing directly in your company. By investing their own funds, advisors demonstrate a deeper level of commitment and send a positive signal to potential investors.

Selecting Advisors:
Choosing the right advisors is akin to selecting co-founders. While a great advisor can be instrumental in your company's success, a poor choice can lead to distractions and wasted time. When considering potential advisors, it is essential to identify individuals who can complement your strengths and compensate for your weaknesses. Additionally, it is crucial to establish clear expectations and align on goals before formalizing the relationship.

Establishing the Advisor Relationship:
To ensure a fruitful advisor relationship, it is vital to define the terms clearly. This includes determining the advisor's domain of expertise, their specific contribution to your company, and the compensation they will receive, whether through equity or other means. Documenting the agreement is essential, particularly if equity is involved. It is advisable to consult with a lawyer and collaborate with the advisor to create an agreement that satisfies both parties.

Optimal Equity Allocation:
When determining the percentage of equity to allocate to an advisor, it is recommended to consider factors such as their level of involvement, expertise, and potential impact on the company's growth. In a study of advisor shares issued in 2019 for companies that raised under $2 million, the range for advisor RSAs was found to be between 0.2% and 1% of the company, while advisor NSOs ranged from 0.1% to 0.5%. It is crucial to tailor the equity allocation to the advisor's contribution and the stage at which they join the company.

Actionable Advice:

1. Be diligent in selecting advisors: Treat the process of selecting advisors as seriously as choosing co-founders. Look for individuals who can compensate for your weaknesses and align with your goals.
2. Document agreements: Clearly outline the terms of the advisor relationship, including compensation, expertise, and expected contributions. Seek legal guidance and collaborate with the advisor to create a mutually beneficial agreement.
3. Optimize equity allocation: Consider the advisor's level of involvement, expertise, and potential impact on the company's growth when determining the percentage of equity to allocate. Tailor the allocation to the advisor's contribution and the stage at which they join the company.

Paying Attention:
In addition to advisor shares, paying attention and filtering information effectively are crucial skills for long-term success. Einstein's approach of having a wide funnel and a tight filter can be applied to reading and learning. Be open to exploring a wide range of topics but quickly abandon those that do not resonate with you. When consuming information, ask yourself if it will still be relevant and valuable to you in the long run.

Remembering the Essentials:
People tend to remember impactful sentences and stories rather than entire books. Even the most profound book will leave you with a few key takeaways. Embrace extreme objectivity, like Darwin, by actively seeking to disconfirm your ideas. Write down anything that challenges your cherished beliefs, fostering a mindset of continuous learning and growth.

Expanding Perspectives:
To open your mind to viewpoints you disagree with, seek out individuals whose views you respect on one topic. By establishing this initial credibility, you can be more receptive to their perspectives on other subjects. This approach helps you challenge your own biases and broaden your understanding.

Conclusion:
Maximizing the value of advisor shares requires strategic thinking, careful selection, and clear agreements. By following a vesting schedule, selecting advisors wisely, and establishing mutually beneficial terms, you can build strong relationships that benefit both parties. Additionally, by paying attention and filtering information effectively, you can enhance your learning and decision-making abilities. Remember to document agreements and consult with experts to ensure legal compliance. With these actions in place, you can optimize the value of advisor shares and propel your company towards success.