Equity Allocation For Advisors in Early Stage Startups

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Last Updated On: 2025-09-01 04:31:52 -0400

For the past month or two, I’ve been an informal advisor to an early stage startup (identity to be later disclosed). My normal practice when someone asks me to advise them is that I never ask for compensation up front – a ton of people helped me over the years and I view this as paying it forward. And I always figure that if I’m providing value, compensation will, at the right point, be discussed. And, recently, this came up – the motivation for this blog post.

Why You Don’t Get This Wrong – Your Cap Table

The first thing to understand is that getting this right is critical. The way shares are allocated is generally referred to as your capitalization table or “cap table”. Given that the general assumption for startups is that you raise multiple rounds, your cap table is scrutinized every time you raise capital. If you allocate shares in a weird fashion (too much to the wrong person) then you are going to have to either:

Explain that particular allocation every time you raise capital
Get that person’s allocation to go down to a more normal ratio (the dreaded claw back)
Look stupid / foolish for allocating shares poorly

So, in summary, you really want to get this right.

The Basic Principle of Equity Allocation

The general idea of equity allocation is that the earlier point you join the company, the more shares should be allocated to you since the earlier points are more risky.

Let’s Look at What Guy Kawaski Says

Even though I have my own perspective on this, I thought it good to look at what an expert like Guy Kawasaki says on the topic. From his Art of the Start book, he states:

For a startup that has raised venture of $1 million to $3 million with no more than 15 employees, use the following allocations:

Senior Engineer: 0.3 to 0.7 percent
Mid Level Engineer: 0.2 to 0.4 percent
Product Manager: 0.2 to 0.3 percent
Architect: 1.0 to 1.5 percent
Vice President: 1.5 to 3.0 percent
CEO brought in to replace the founder: 5.0 to 10.0 percent

If you think about these allocations, they make sense – a product manager doesn’t have as direct an impact on the company’s success as an architect – so the product manager gets a smaller percentage.

My Experience

Guy’s recommendations above nicely parallel my personal experience. When I brought Scott Rafer in to head Feedster so I could focus on being VP of Engineering, he got 6%.

So What is a Startup Advisor Worth?

The rule of thumb for an advisor is the more directly they are involved in the company’s overall success, the greater the equity allocation. Some advisors are loosely affiliated, other advisors might participate in the weekly standup, help with a business plan, etc.

According to Silicon Valley Bank, startup advisors should receive between 0.25% and 1% of shares