Brian Nichols is the co-founder of Angel Squad, a community where you’ll learn how to angel invest and get a chance to invest as little as $1k into Hustle Fund's top performing early-stage startups.

Most founders give away equity to advisors without thinking it through. Then they wake up one day and realize they've handed out 2% of their company to someone who checked in twice, and disappeared.

Advisory shares exist in this weird middle ground between employee equity and investor ownership. You're not paying these people salaries. They're not writing you checks. They're supposed to be giving you advice and opening doors. But here's the problem: nobody has a clear framework for what that actually means.

What Advisory Shares Really Are

Think of advisory shares as compensation for strategic guidance and network access. An advisor gets equity because they're supposed to help you avoid expensive mistakes or unlock opportunities you couldn't reach on your own. The emphasis here is on "supposed to."

Most advisors get somewhere between 0.1% and 1% of your company, vesting over two to four years. The percentage depends on how early you are and how much value they're actually providing. Someone coming in pre-seed who's opening doors to your first 10 customers? That's worth more than someone joining at Series A to add a fancy name to your website.

The vesting schedule is critical. You don't want to give someone 0.5% upfront only to have them ghost you three months later. Standard practice is monthly vesting over two years, sometimes with a three-month cliff. This protects you if the relationship doesn't work out.

The Problem Most Founders Run Into

Here's what usually happens. A founder meets someone impressive at a conference. This person says they'd love to help. The founder gets excited, draws up some advisory shares, and locks in a deal. Three months later, the advisor has introduced them to exactly one person and responded to two emails.

The real issue is that sometimes founders treat advisory shares like they're free money. They're not. Every percentage point you give away dilutes your ownership and your employees' ownership. When you eventually raise a Series A, that 3% you handed out to advisors who aren't doing much becomes a real problem.

I've seen cap tables where founders gave away 5% total to advisors who did basically nothing. That's 5% that could've gone to early employees who are actually building the company. Or stayed with the founders so they don't get diluted into oblivion.

How to Actually Structure Advisory Shares

First, be specific about what you expect. Don't just say "we'd love your advice." Write down what success looks like. Is it three customer intros per quarter? Monthly check-ins? Help with fundraising? Whatever it is, make it explicit.

Second, tie the equity to deliverables when you can. Some advisors will balk at this, but the good ones won't. If someone's value is their network, structure the vesting around actual introductions. If it's strategic guidance, tie it to quarterly meetings.

Third, don't be afraid to let advisory relationships end. If someone isn't holding up their end after six months, have a conversation. You can stop the vesting and part ways. The ones who care about founders will understand.

There's also this misconception that you need a bunch of advisors to look legitimate to investors. You don't. Investors care about your team and your traction. A roster of advisors who aren't doing anything doesn't impress anyone. One great advisor who's actually engaged is worth ten trophy names on your website.

The Alternative Nobody Talks About

You can pay advisors cash instead of equity. Shocking, I know. If someone's going to provide ongoing value, sometimes it's cleaner to just pay them $2,000 a month or whatever makes sense for your stage. This works especially well when you've raised some money and have the cash to spend.

The advantage is clarity. You're paying for a service, they're delivering it, and there's no equity muddying the waters. If it's not working, you can end it without any cap table complications.

Early-stage founders usually can't do this because they're low on cash. But if you're post-seed and trying to decide between giving away equity or paying cash, consider the cash option. Your future self will thank you when you're not explaining to Series A investors why you have eight advisors on your cap table.

What Investors Actually Think

Investors look at your advisory shares to gauge how thoughtful you are about your cap table. Too many advisors? Red flag. Advisors with huge equity stakes? Another red flag. Advisors who are clearly just names and not actually engaged? You get the idea.

The best scenario is having one or two advisors with reasonable equity stakes who are genuinely involved. When investors talk to your advisors during diligence and those advisors actually know what's going on with your company, that's a good sign. When advisors barely remember your name, that's a problem.

Some investors will ask you to justify every advisor on your cap table. Be ready to explain what each person brings and why their equity stake makes sense. If you can't do that clearly, you probably gave away too much to the wrong people.

Getting It Right

Start by being conservative. You can always give someone more equity later if they're crushing it. You can't take it back once it's vested.

Make the expectations crystal clear from day one. Put it in writing what you expect and what they're getting. Have quarterly check-ins to assess if it's working.

Don't give equity to people just because they're willing to take a meeting with you. Their time is valuable, sure, but so is your equity.

And remember that the best advisors often emerge organically. Someone who's already helping you without any formal arrangement might be worth formalizing things with. Someone pitching you on why they should be an advisor probably isn't.

Your cap table tells a story about how you make decisions. Make sure the story isn't "I gave equity to everyone who asked because I didn't know any better." Advisory shares can be incredibly valuable when structured right. Just make sure you're getting what you're paying for.

If you're an early-stage founder trying to figure out how to structure these relationships or looking to connect with investors who understand this stuff, Angel Squad has resources and a community that can help you think through these decisions before you make them.