Recently, I was invited to become an advisor to Racemi. I said yes.
Over the years a lot of startup companies haved reached out to me and asked if I would consider being an advisor.
It’s also a huge commitment to make.
This kind of ask is not uncommon considering my background and the exposure it affords me. Of course, I say no more than I have said yes but I take the time to explain why I say no so much more than I say yes.
Previously, I’ve been an advisor to many more startup companies. Most of them no longer exist. Reflections upon correlation and causation are out of scope for this post.
Recently, I’ve had more than a few folks ask what my thought processes are on being an advisor.
Disclaimer: IANAL and nothing from this point forward constitutes anything other than words in a markdown text file being rendered for your viewing amusement
When I Say Yes
Presently, I’m an advisor to several startup companies — some named like AwayFind and most recently Racemi — and some stealth. In most cases I have purposely limited myself at 0.1% to .75% in my grant size over a 24 to 36 month period of monthly vesting without a cliff. The goal is to be useful and timely while preserving the equity for the team that is doing the actual day to day heavy lifting.
How I Say Yes
Startups come in many types and stages. Some startups are scrappy pre-funding bootstrap variety startups, some have taken angel funding and others have taken seed and others have taken additional series and been acquired which is another reason for the variance in grant size based on pre-money vs. dilution.
Often, I’ll require an expense clause consistent with my own consulting rate card regardless to keep an awareness of the externality of the relationship. I’ll even attach my last versioned consulting rate card to make sure there is no ambiguity as to the value of my time.
You might be saying… wow, those last few paragraphs sound really well thought out and fair… and there’s a reason for that.
People much better at this than me have been at this for much longer than I have so please review this post from Matt Bartus to understand the method that I subscribe to and recommend for advisor grants. Next, temper that post with the Founder Advisor Standard Template embedded at this TechCrunch article that still holds up well.
When I Say No
Just for a moment, let’s just say that my advice is hypothetically worth $100 to $250 an hour. I give a range so that this thought excercise won’t wrap folks around the axle of how cheap or how expensive that sounds. (Hint: ask a lawyer or similar services firm what they make per hour off of startups and keep in mind IANAL)
Now let’s look at a scenario where a startup is only asking for an advisor and isn’t sure how to compare advisor value.
Consider that at 0.2% grant size my value of $250 per hour is reasonable for the depth and experience I bring as an advisor. Now consider a weekly commitment of between 1 and 3 hours is a reasonable amount that should not to exceed 8 hours in any given month. So, in terms of my value you’d have “spent” ~$40k over 24 months for my time and energies. Alternatively, moving me to 1% grant size would represent up to 24-30 hours in any given month where you “spent” ~$200k over 24 months for my time and energies. My risk increases (I’m just a consultant just providing advice after all) as grant size increases as the expected hours would be normally generating revenue for my own business so I’m sure you can appreciate my position.
Now consider this before I tell you “No” — what could you have done with ~$200k over 24 months if we had not met and talked?
Now consider this before I tell you “No” — what person on your team would you really allow to only work 8-10 hours a week?
Now consider this before I tell you “No” — why haven’t you asked me for a ~$200k angel investment?
How I Say No
It’s also a huge commitment to make.
I have to say “No”.
I wish you all the luck in the world!
Update for 2015
Update for 2016
Often While clicking around in suggested reading channels on vibrant Slack teams (as one does these days) I come across interesting links and recall this blog post. Again, in the spirit of prior art, please check out The Open Guide to Equity Compensation.