Tell me more ×
Answers OnStartups is a question and answer site for entrepreneurs looking to start or run a new business. It's 100% free, no registration required.
up vote 3 down vote favorite

This question already has an answer here:

I'm assembling a board of advisors for a brand new company. I'm thinking of gathering five individuals and paying them 2% each for a total of ten percent. This ownership stake would vest fully after 2 years. Since this is a private company and is probably not going to ever go public, I am not sure what to call this ownership stake. Is it options? Stock? Equity?

Also, if I create a cliff of 12 months, that means that someone cannot excercise the vested portion for 12 months. If one of the BOA decides to excercise their "option, stock, or equity" how do I calculate this? Is it based on revenue at the moment? Is it based on net revenue at the moment? Is there something standard?

Thanks

share|improve this question

marked as duplicate by Jesper Mortensen♦ May 20 at 17:09

This question has been asked before and already has an answer. If those answers do not fully address your question, please ask a new question.

3 Answers

up vote 3 down vote

2% is a HUGE percentage for an advisory board member. I am on the advisory board of three different companies and the most I get in exchange is options worth less than one tenth of one percent.

share|improve this answer
up vote 1 down vote

Typical advisory boards receive stock options that vest over a two year period. There is typically no cliff since the duration is so short.

All options will have a value and that value will be used to calculate how much they cost. When you form your company, you will grant founders stock and set a share price and an option price. Each financing round your company does will have a share price and an option price.

share|improve this answer
up vote 1 down vote

Jamie, it also depends on how big the company will grow and what the norms are in your local geographic area. There are a number of great advisors in my community that sit on advisory boards for some local startups, and all the startups do is cover their dinner & drinks at a board meeting each month.

I'd hit the pavement and ask up a couple of entrepreneurs/advisors in your area.

share|improve this answer