The Guide to Advisor Shares: How to Choose the Right Advisors for Your Company and Establish Equitable Agreements

The Guide to Advisor Shares: How to Choose the Right Advisors for Your Company and Establish Equitable Agreements

Introduction:

When it comes to building a successful company, having the right advisors on board can make a significant difference. Just like you have a vesting schedule for yourself and your employees, it is crucial to establish a vesting schedule for your advisors as well. This not only ensures their commitment to your company but also sends a valuable signal to future investors. In this guide, we will explore the importance of picking the right advisors, establishing equitable agreements, and provide actionable advice on how to navigate this process successfully.

1. Choose Advisors Like Co-founders:

Picking the right advisors for your company is a critical decision that can shape your success or become a distraction. Treat this process as if you were choosing co-founders. Advisors can bring valuable expertise, connections, and guidance to the table. However, it is essential to evaluate their compatibility with your vision and goals. Look for advisors who can compensate for your weaknesses and bring complementary skills to the team.

2. Establishing Equitable Agreements:

Before promising equity to an advisor, consider if they would be willing to invest in your company instead. Investing directly not only gives them more skin in the game but also sends a strong signal to future investors. However, if equity is the preferred compensation, it is crucial to document the agreement properly. Work with a lawyer and your potential advisor to create a signed agreement that outlines:

• The advisor's domain of expertise.
• The specific areas they will help you with.
• The percentage of equity or other compensation they will receive.

Documenting the agreement ensures clarity and prevents any misunderstandings in the future.

3. Vesting Schedule and Equity Allocation:

When determining the vesting schedule for advisor shares, it is essential to consider the timing and value they bring to your company. Avoid a four-year schedule as advisors typically deliver most of their value upfront. Instead, opt for a two-year schedule with monthly vesting and no cliff. Early-stage advisors usually receive a higher fully-diluted amount. However, it is crucial to reassess the relationship after a year or two to determine if it is mutually beneficial and worth continuing.

4. The Creative Brain: Connecting Old Elements in New Ways:

Creativity is often seen as generating something entirely new from scratch. However, true innovation often stems from combining existing elements in novel ways. The ability to see relationships between concepts is the key to creative thinking. By forming new links between old ideas, you can unleash your creative potential. Here are five steps to enhance your creative thinking:

• Gather new material: Focus on learning both specific and general knowledge related to your task. Explore a wide range of concepts to expand your understanding.
• Work over the material: Examine what you have learned from different angles and experiment with fitting ideas together. Challenge assumptions and explore alternative perspectives.
• Step away from the problem: Give your mind a break and let your subconscious work on the problem. Often, ideas come back with a flash of insight when you least expect it.
• Shape and develop your idea: Once the idea returns, refine and develop it based on feedback. Share your process, gather criticism, and adapt your idea as needed.
• Test and adjust: Release your idea into the real world, test it, and gather feedback. Use this feedback to refine and adjust your idea further.

Conclusion:

Choosing the right advisors for your company and establishing equitable agreements is crucial for your success. Treat advisors like co-founders and ensure their expertise aligns with your goals. Document the agreement and consider alternative compensation options. When it comes to fostering creativity, remember that innovation often stems from connecting old elements in new ways. Follow the five steps mentioned to enhance your creative thinking abilities. Remember, learning from others, engaging in deep thinking, taking breaks, adapting based on feedback, and testing ideas are all essential in the creative process.

Actionable Advice:

1. Treat advisor selection like choosing co-founders. Look for complementary skills and align their expertise with your vision.
2. Document agreements properly to ensure clarity. Work with a lawyer and your potential advisor to create a signed agreement.
3. Foster creativity by connecting old elements in new ways. Follow the five steps of gathering material, working it over, stepping away, shaping the idea, and testing it in the real world.

By following these guidelines, you can navigate the process of choosing advisors and fostering creativity effectively. Remember, building a successful company requires not only the right people but also the ability to think creatively and innovate.