Advisory shares are equity grants that startups give to outside advisors in exchange for their expertise, connections, or strategic guidance. Unlike equity given to employees or co-founders, advisory shares compensate people who aren’t working at the company full-time but contribute meaningfully to its growth. The grants are typically small, often well under 1% of the company, and vest over a defined period to ensure the advisor stays engaged.
How Advisory Shares Work
A startup identifies someone whose knowledge or network could help the business grow. Maybe it’s a seasoned executive in the company’s industry, a technical expert, or someone with deep connections to potential customers or investors. Rather than paying this person a consulting fee (which most early-stage startups can’t afford), the company offers a small equity stake.
The advisor and the company sign an advisory agreement that spells out what the advisor will do, how much equity they’ll receive, and how that equity vests over time. Advisory shares are usually structured as either stock options (the right to buy shares at a set price later) or restricted stock (actual shares subject to conditions). In both cases, the advisor doesn’t get everything upfront. The equity vests gradually, meaning the advisor earns it over time as long as they continue contributing.
Advisors don’t typically receive voting rights or any special liquidation preferences. They hold common stock or options on common stock, putting them in a similar position to employees rather than investors. Most advisory agreements also include transfer restrictions, preventing the advisor from selling or giving away shares without the company’s approval.
Typical Equity Amounts
Advisory grants are small relative to founder or employee equity. The exact percentage depends on the company’s stage and how involved the advisor will be. According to Carta’s data from the first half of 2024, the median advisory grant was 0.21% at the pre-seed stage, 0.12% at seed, and 0.05% at Series A. Only 10% of pre-seed advisors received 1% or more.
The Founder Institute’s widely used FAST Agreement (Founder/Advisor Standard Template) provides a useful framework for calibrating grants based on two factors: the company’s stage and the advisor’s level of involvement.
- Idea stage: 0.25% for a standard advisor (monthly meetings and general guidance), up to 1.00% for an expert-level advisor who also makes introductions and works on specific projects.
- Startup stage: 0.20% standard, up to 0.80% expert.
- Growth stage: 0.15% standard, up to 0.60% expert.
The logic is straightforward. Earlier-stage companies carry more risk, so advisors deserve a larger slice. And advisors who contribute more than occasional advice, actively opening doors or rolling up their sleeves on projects, earn a higher percentage than those who attend a monthly check-in call.
Vesting Schedules and Cliff Periods
Advisory shares almost always vest over time rather than being granted all at once. The standard vesting period for advisors is two years, shorter than the four-year schedule typical for employees. This reflects the reality that advisory relationships tend to be less intensive and shorter-lived than employment.
Most advisory agreements include a cliff, a minimum period the advisor must serve before any equity vests at all. The FAST Agreement uses a three-month cliff. If the relationship isn’t working out, the company can end it within those first three months without owing the advisor any equity. After the cliff, shares vest monthly for the remainder of the two-year period.
This structure protects both sides. The company doesn’t give away equity to someone who disappears after one meeting. The advisor knows that as long as they stay engaged, they’ll steadily earn their stake.
Advisory Agreements
A formal written agreement is essential. It should cover the advisor’s specific responsibilities (attending monthly meetings, making introductions, reviewing product strategy), the equity amount, the vesting schedule, confidentiality obligations, and what happens if either party wants to end the relationship early.
The FAST Agreement has become something of an industry standard because it simplifies this process. Created by the Founder Institute, it’s a one-page template that lets both sides check boxes for the company stage and advisor tier, automatically determining the equity grant. Using a recognized template can speed up negotiations and signal to the advisor that you’re offering fair, market-rate terms.
That said, any well-drafted advisory agreement works. The key is putting it in writing before the advisor starts contributing. Handshake arrangements around equity cause problems later, especially if the company raises funding and investors want to see a clean cap table showing exactly who owns what.
Tax Considerations for Advisors
How advisory shares are taxed depends on whether the advisor receives restricted stock or stock options.
With restricted stock, the IRS normally taxes you on the value of each batch of shares as they vest. The taxable amount is the fair market value of the shares at the time of vesting, treated as ordinary income. If the company has grown significantly since you signed the advisory agreement, you could owe taxes on shares that are worth considerably more than when you first received the grant.
This is where the 83(b) election comes in. Filing an 83(b) election with the IRS lets you pay taxes on the full grant at the time it’s issued, based on the shares’ fair market value at that moment. For an early-stage startup, the fair market value is often very low, sometimes essentially zero. If the value of the shares at grant equals the price you paid for them (or they were free and worth next to nothing), the taxable gain can be zero. Any future appreciation would then be taxed as capital gains when you eventually sell, which is typically a lower rate than ordinary income.
The catch: you must file the 83(b) election within 30 days of receiving your shares. Miss that window and you lose the option entirely. For stock options, the 30-day clock starts when you exercise the options, not when they’re granted.
Failing to file an 83(b) election when it would have been beneficial can result in a significantly higher tax bill, because each vesting event triggers ordinary income tax on shares that may have appreciated substantially since the original grant date.
What Makes a Good Advisory Relationship
The equity is only worth something if both sides take the relationship seriously. For founders, that means choosing advisors who fill genuine gaps rather than collecting big names for a website. An advisor with deep expertise in your sales channel or regulatory environment will add more value than a celebrity entrepreneur who takes a monthly call but has no relevant knowledge.
For advisors, the commitment is real even if it’s part-time. Most standard advisory arrangements expect at least a monthly meeting, prompt responses to questions, and a willingness to make introductions when appropriate. Expert-tier advisors may spend several hours a month on specific projects or actively connect the company with potential partners, customers, or investors.
The equity involved is small in percentage terms but can become valuable if the startup succeeds. A 0.25% stake in a company that eventually reaches a $100 million valuation is worth $250,000. That potential upside is what makes advisory shares attractive to experienced professionals who could otherwise charge hefty consulting fees.