Advisor asking for 7%, is it normal?

[hangnon2jesus]

Hello guys we have a good team (technical with 5 YOE and masters, business founder, and sales/marketing founder) and we are all long time friends. We just started things out two months ago and this advisor strongly likes our vision and we had 3 calls with the team and 2 extra with me, the CTO. Now he asked for equity before the relation seriously starts and we were shocked by his expectations.

Here’s what he claims:
- He founded a successful a startup and raised +10M and got acquired.
- He has his VC.
- He currently works as an advisor for a couple of startups, 2 to 3 exits.
- He talks to us with a tone of a successful entrepreneur with multiple exits that can take our crappy startup to the moon. We don’t disagree on our crappy startup; we are first time founders but we are worried if he will help us or waste our time. These calls were just to know each other, judge our work but weren’t beneficial in anyway. Even most of the advices are widely available online on in the lean startup book for example.

We digged deep into his career and here’s what we found:
- The startup he founded doesn’t exist anywhere on the internet except on the archive.org; wasn’t successful as he claimed, they kicked the CTO super early and they raised only 1M. They never got acquired; no information about whether they closed or got acquired.
- His VC is a weird landing page and no one works there on LinkedIn except him.
- His LinkedIn is kinda empty, no posts, only his experience at his first startup + sales roles.
- There’s no information anywhere about the advisory roles he is having anywhere (he talks a LOT about them).

We just finished a call with him a moment ago to discuss:
1. His contribution: he said he is expert at sales and he can help in fundraising, product market fit, and strategy.
2. How much time he can commit: he refused to do it time commitment wise, he said “in the beginning you will need more commitment than later, so I prefer to do it responsibilities wise not time commitment wise, sometimes I will give more sometimes I will give less, it really depends on our need.”
3. What’s your expectations about equity? He said “equity for an advisor can be anywhere from 0 to 10% and for example the last company I joined and having an exit soon, I had 7%. I aim for at least $12M-$14M in return.”

We are building a B2B AI product, we have an MVP tested with our network, great reactions but no real traction yet. We still between the idea to startup stage. We have a clear vision. And obviously we need tons of help.

Any advices/relevant experiences are super appreciated!

 

[leonsarahh]

@hangnon2jesus Red flags all over it. Don’t touch

 

[maxfromcapetown]

@leonsarahh A good way to protect yourself from these is to condition outrageous claims to compensation, and when they start back peddling you know they wanted you to take all the risk and them to get all the upside.

 

[rgvbaptist]

@leonsarahh Yep.

And for future reference, advisors CAN BE worth 7% if they are high value. I’ve seen advisors take 15% before, but it’s only in situations where that advisor actually increases the chances of the startups success substantially. For example, in medical companies, leading doctors will often take huge chunks of advisory shares because it’s what necessary to raise more money

 

[ccallagh]

@hangnon2jesus Sounds like he’s a massive scammer. We have known KOLs at advisors and have them on a 4 year vesting contract with 0.5% equity in return for their 3-4h of their time monthly.
Stay away from this guy.

Edit; and to the comments in the thread that you should ask for capital; do you want someone as an investor who tries to take advantage of you from the get go..?

 

[hangnon2jesus]

@ccallagh Thanks for sharing!

 

[delta007]

@ccallagh Curious: is your advisor engagement pretty standard?

 

[ccallagh]

@delta007 Our initial one was, when things got a bit more serious our lawyers drafted us a new one that protects us also in terms of IP and a few other things that skew it in our favor.

 

[delta007]

@ccallagh Thanks.

 

[sealedinchrist]

@hangnon2jesus This person asking you for 7% indicates to me that they are either extremely inexperienced or outright trying to trick you. At this stage, equity should come with an employment agreement and a vesting schedule. Additionally, having an “advisor” with so much equity will raise questions with future investors about their role on the team. If they aren’t pulling their weight (which… I doubt they will) then it will be a serious red flag.

You would get much more for that 7% from an incubator program.

 

[hangnon2jesus]

@sealedinchrist I can’t disagree!! Thanks tons for the notes.

 

[richlaw]

@hangnon2jesus They’re asking for full time executive equity for part time work. 7% is insane for an advisor that won’t make any commitments to the company. Try 0.7% or tell them they can invest capital if they want to own more of the company.

 

[bigoink]

@richlaw No, don’t try anything. This guy has nothing to add.

7% is close to what YC defines as co-founder equity.

It’s dead equity. Will be harder to raise later.

 

[alej]

@richlaw This but vested over 4 years with 1 year clif.

 

[hangnon2jesus]

@richlaw Thank you for the advice.

What do you think about the fact that we can’t verify any of his success stories? Should we ask for references or try to find people he worked with in the past and contact them?

 

[richlaw]

@hangnon2jesus I would just move on. You don’t need this person.

 

[christianwriter87]

@hangnon2jesus Sounds like a scam...

Look at this publicly available template for advisors:
https://fi.co/fast

If you still like to try him... that contract gives you 3 months to fire him without loosing any equity.

 

[moralamerican]

@christianwriter87 I tend to like the resources at FI.

Anyone else have exp with them?

Has the OP considered joining one of these programs?

 

[613jono]

@christianwriter87 Curious about why this agreement makes any sense. If a company is idea stage and you are "Standard" performance they are suggesting 0.25% in exchange for 5 hours per week of work. If you multiply that out by 8 you get 40 hours of work for 2% (if you were to advise 8 startups at "standard" performance.)

So a company is only idea stage and you are advising 8 startups and working full time in exchange for 0.25% equity in each? Sounds like a garbage compensation package for an advisor. You could put in the same amt of work at the idea stage as a founder and get double digit equity.

The cliff / vesting period looks solid but it just seems like low equity comp for the amt of work involved.

BTW I could see getting 0.25% equity in a company as an advisor but not contributing 5 hours a week as they suggest. that hourly committment is what irks me.

 

[shiningstar89]

@christianwriter87 FYI to OP I've worked at a start up to 10MM rev as employee 5 and cofounded a startup to raise 5MM for a seed. Ive always used the above fi.co/fast template.