In the early stages of a startup, you may come across people you’d like to get involved with but don’t want to become your employees, for example, advisors, mentors, or ambassadors. They are usually pretty senior, so it is tricky for a startup to motivate them financially. That’s where equity might come to the rescue. These collaborators will be motivated by the success of your startup, which may have a more significant upside than a fixed fee that doesn’t depend on the results. Granting equity also allows the founders to start cooperating with people who would otherwise not want to get involved. So, it's a win-win.

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For general information, check out Carta's Advisory Shares guide. It might not be relevant to your country, but it provides a nice introduction with some data and benchmarks.

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More information regarding mentors can be found in Working with Mentors.

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How much equity is it ok to give up?

In terms of absolute numbers, Carta’s 2024 data provide good insights into the issuance of advisory shares by startups (Peter Walker, Hamza Shad, Kevin Dowd. (July 25, 2024). State of Startup Compensation, H1 2024. Carta. https://carta.com/data/startup-compensation-h1-2024/):

• The median pre-seed advisor grant was 0.21% of company shares.
• The median seed advisor grant was 0.12%.
• Only 10% of pre-seed advisors received 1% or more equity.
• Only 10% of seed advisors received 0.5% or more.

General Guidance

• The later in your startup journey, the less equity you should grant. Conversely, the earliest stages pose a considerable risk, so it's also a risk for an external person investing their time.
• Collaboration in some areas might be more valuable than in others. This “value” should be reflected in the equity you grant. If you are already knowledgeable in the domain, a mentor will not be of big value to you. For example, a developer-turned-founder will value a sales mentor much more than mentoring in tech. Also, different areas are crucial in different stages of the startup. A technical mentor will be the most valuable at the early stage, whereas a growth mentor may be valued the most in the startup's later stages when the product is already in place.
• The collaborator's experience, expertise, prestige, and, therefore, the value they provide also play a role. The more experienced they are, the more equity they should get.
• The intensity of the collaboration should also influence equity. The more time a mentor commits to you and the more involved they are, the more equity they deserve.

Legal Setup

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Please note that the following guide is specific to CZ startups and may not apply to you.

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Before diving into the specifics, you should have at least a basic understanding of an employee stock option plan (ESOP). This is crucial because our documentation draws significant inspiration from ESOPs; many of the same concepts apply here. Even though this is not rocket science, it's not particularly trivial either. If you're new to the topic, reading through everything from start to end might be beneficial.

Long story short, ESOP is a way of remunerating your employees not with money but with a piece of your company. But if you are uncomfortable with this topic, try starting with the video below. It is USA-specific, so some of the explained terms work differently in our setup, but the basic terms are explained well.