Advisory shares
What are advisory shares?
Advisory shares are equity grants, typically stock options, issued to advisors in exchange for guidance, introductions, or domain expertise rather than employment. For startups, advisors are commonly given grants from 0.1% to 0.5% of fully diluted equity from the option pool, governed by IRS Section 422 for ISO eligibility purposes (though most advisory grants are NSOs).
How much equity should advisors receive at each stage?
| Stage | Typical advisory grant range |
|---|---|
| Pre-seed | 0.25% to 0.5%, early advisors take more risk, compensated accordingly |
| Seed | 0.1% to 0.25%, domain experts, operators, potential first customers as advisors |
| Series A | 0.05% to 0.1%, specialist advisors, board observers, industry connectors |
| Series B+ | 0.01% to 0.05%, narrow-scope advisors, regulatory or market access specialists |
How does vesting work for advisor equity grants?
Unlike employee grants which use a 4-year / 1-year cliff schedule, advisory grants typically vest monthly over 12-24 months with no cliff, reflecting continuous contribution rather than a defined onboarding period. The Fast Agreement (FAST), published by the Founder Institute, is the most widely used standard advisory agreement template in the US.
How should founders structure advisor compensation to avoid cap table problems?
The most cap-table-efficient advisor structure is a consulting agreement paired with an NSO grant from the option pool, with a 1-year or 2-year vesting schedule and no cliff. This approach keeps advisor equity in the option pool (not as directly issued shares), ensures the grant is revocable if the advisor becomes inactive, and ties compensation to ongoing contribution. Granting common stock directly to advisors (rather than options) creates a tax event for the advisor at grant and adds a shareholder who must sign off on future corporate actions. Options from the option pool are cleaner for both the company and the advisor.
What do advisors actually receive for their equity and what do founders get in return?
An advisor agreement should specify what the company expects in return for the equity: introductions (to how many people, with what seniority), hours of access per month, and any deliverables such as reviewing pitch decks or attending board observer meetings. Advisors who do not meet their commitments should have their unvested equity terminated. The FAST (Founder/Advisor Standard Template) developed by the Founder Institute provides a standard advisor agreement structure that most US startup lawyers accept without modification. It specifies contribution level (idea, development, strategy) and links grant size directly to the level of commitment, giving founders a defensible benchmark when advisors push for more equity.
What do founders get wrong with advisory shares?
The most common mistake is granting advisory shares too early and too generously without confirming the advisor's actual availability and network. A well-known name on an advisory list looks good on a pitch deck but costs real equity. An advisor who takes 0.5 percent at seed and provides three introductions over two years was not a good deal. Before any grant, founders should test the advisor relationship with a small paid project or a specific unpaid introduction request to see if they actually deliver.
A second error is not including a termination clause. If an advisory relationship becomes unproductive or the advisor joins a competitor, founders need the ability to terminate unvested equity. Without an explicit termination right in the advisor agreement, unvested equity continues to vest even after the relationship has effectively ended. All advisor agreements should include a termination right exercisable by the company with 30 days notice.
Third: accumulating too many advisors. A cap table with 8 advisors each holding 0.25 to 0.5 percent has 2 to 4 percent in advisor equity, all of which dilutes the founders and employee option pool. Quality of advisor relationships matters far more than quantity. Two deeply engaged advisors who make targeted introductions and attend monthly calls are worth more than eight who are advisory in name only.
How it works in practice
Case example: Seed-stage climate tech company, 3 advisors
A climate analytics SaaS company raises a $1.5M pre-seed round and brings on three advisors: a former VP Sales at a comparable SaaS company (0.3%, 18-month monthly vest), a carbon market regulatory expert (0.15%, 12-month monthly vest), and an angel investor who made the lead intro (0.1%, 12-month monthly vest).
Total advisory grant: 0.55% of fully diluted equity from the option pool. All three receive NSOs. At exercise, the spread between strike price (set at the 409A FMV on grant date) and fair market value is taxed as ordinary income. The advisors are explicitly told this at grant, one chooses to exercise immediately at a low early-stage 409A value to minimise the eventual income tax bill.
At Series A, the lead investor reviews the cap table. Three advisors with clear contribution rationale and standard vesting schedules is a positive signal. Fifteen advisors at 0.5% each on informal arrangements with no signed agreements is a red flag that slows diligence.
Frequently asked questions
Do advisors receive ISOs or NSOs?
Most advisory grants are NSOs (Non-Qualified Stock Options) because ISOs can only be granted to employees. Advisors who are not on payroll receive NSOs, which are taxed as ordinary income at exercise on the spread between strike price and fair market value at the time of exercise.
How do you terminate an advisory relationship?
The advisory agreement should specify termination conditions. Unvested shares lapse on termination. Vested options typically have a 90-day exercise window after the advisory relationship ends, identical to employee departure terms.
Should advisors be on the cap table from day one?
Not necessarily day one, but certainly before a Series A. Undocumented advisory arrangements that have been operating on a handshake basis are a common diligence issue. All advisory agreements should be in writing with signed option grant notices before any institutional fundraise.
Can an advisor also be an investor?
Yes, and this is common. An angel investor who takes a board observer seat or advisory role will hold both shares from their investment and options from the advisory grant. These are tracked separately on the cap table and have different tax treatment at exit.
What is the FAST agreement and should founders use it?
The FAST (Founder/Advisor Standard Template) is a standardised advisor agreement developed by the Founder Institute that most US startup lawyers accept without modification. It defines contribution levels (idea, development, strategy) and links grant sizes to each level. Using FAST reduces legal fees, creates clear expectations with advisors, and avoids the ambiguity of bespoke advisor agreements that may favour the advisor at the expense of the company.
Related glossary terms
- Option Pool, the equity reserve from which advisory share grants are made
- Vesting Cliff, the earliest date on which employee options vest (advisory grants typically have no cliff)
- Stock Options (Startup), the mechanics of ISOs and NSOs that underpin most advisory grants
Explore related Fintera content
- Fractional CFO for Startups: The 2026 Playbook, how a fractional CFO structures equity grants and cap table hygiene as part of fundraise preparation
- Fractional CFO Services: Scope, Tiers and Stage Fit, what a fractional CFO engagement covers including equity administration oversight
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