Sweat equity for advisors: how much should you give?

Bringing experienced advisors on board is one of the smartest moves a startup can make. It’s a way to tap into valuable expertise without the commitment of full-time hires - and gain access to connections and opportunities that can accelerate your growth.

However, if you’re rewarding them with sweat equity, and not cash, how much should you give? And how should you structure it so it’s fair and motivating?

Let’s walk this through.

What is sweat equity?

Sweat equity is ownership in your company earned through effort - not through cash investment. 

In the early stages of a startup, cash is in short supply and you may not have the ability to pay specialists and advisors their market rate. However, you can offer them a stake in your company. 

For advisors, it’s an opportunity to share in the upside of a business they believe in. For founders, it’s a way to attract high-quality input and guidance that could otherwise be out of reach.

But knowing how much to give away when people’s contributions are less tangible (when compared to traditional capital investment), can be tough.

What kind of advisors are we talking about?

The word ‘advisor’ can get thrown around a lot, and shouldn’t be conscribed to anyone who helps to shape or influence your journey - formal advisors should bring more to the table than just an opinion. 

We usually see three main types of advisors: 

• Board advisors

These are usually experienced founders, investors, or industry experts who help to guide the company’s strategic direction. They are often given a small formal role or a board seat, and take on governance responsibilities. 

They’re often given a small formal role - sometimes a board seat - and may take on some governance responsibilities.

• Technical advisors

These advisors will bring on specific, hands-on technical expertise. They will help you to build and execute your product roadmap, make key technical choices, and help you with the more advanced and industry-specific decisions you’ll need to make.

Because their input tends to be more hands-on and involved, what you’ll generally see is technical advisors taking home a slightly higher equity rate than other advisors, but we will touch on that shortly.

• General advisors 

These are specialists who add value in a given area - this could be marketing, accounting, operations - but these generally do not sit on the board. 

They could review documents, make key introductions, or get referred to when navigating key challenges.

Paying advisors: equity, cash, or both?

Early-stage startups will often prefer to offer equity-only arrangements. When cash flow increases as the business grows, you may want to revisit the arrangements and incorporate a monthly cash retainer in place of a larger equity stake. 

If your advisor prefers cash, consider offering less equity, or tying equity to key performance milestones, such as key client or supplier introductions made or product deliverables.

The key is transparency - discuss expectations and capacity early, recording everything formally.

How much equity should you give to an advisor?

There’s not a one-size-fits-all number to this question - the right amount should factor in: 

• The advisor’s experience and profile
• The stage of your company
• How hands-on you want them to be
• The duration of their involvement
• Whether they’ll be getting cash in addition to equity

That being said, here are some typical benchmarks:

The above values are all approximate, and subject to the factors listed. Between 0.5-1% is usually the standard benchmark for advisors who contribute between 1-2 days per month, and is compensated solely in equity. 

If an advisor is heavily involved, such as mentoring your team weekly or helping to raise funds into your business, you may want to offer them more. If they have a role that is mostly hands-off and reputational (such as adding credibility to your pitch deck), a lower percentage may be more appropriate.

To understand how different percentages may affect your cap table, use our equity sharing calculator.

How does valuation affect stake?

It should go without saying that the larger your company valuation, the smaller the percentage you’ll expect to give to advisors. 

If your company is valued at £250k, then 1% equity is a very different proposition to 1% of a £5m company. But most advisors join early because they see long-term profit, not short-term value.

The key is to focus on alignment - does the advisor’s share feel meaningful to them, and reasonable to you as a founder?

Ensuring commitment with vesting

It’s inadvisable to give all the equity upfront - just like employees, advisors should earn their shares over time. 

A vesting schedule ensures that if your relationship ends, or if the advisor doesn’t deliver as expected, they only receive the portion they’ve genuinely earned. 

You can customise your vesting schedules to align with your growth plans, and promises and agreements set with advisors. This simple mechanism will protect your cap table and your stake as founders.

Growth shares: your key to rewarding advisors

When it comes to rewarding advisors, growth shares are one of the smartest and fairest ways to do it. They give your advisors the potential to benefit from your company’s success - but only once it’s grown in value.

Here’s how they work: rather than issuing ordinary shares at today’s value, advisors will get a class of shares that only carry value above a certain threshold. 

This set-up ensures: 

• Alignment: advisors are motivated to grow the business because their reward is dependent on that growth.

• Tax efficiency: since growth shares have minimal market value on issuance, they can often be awarded with minimal tax implications for both the founder and recipient.

They’re also flexible - you can add further vesting conditions and performance milestones to ensure rewards are tied to the contributions you’re looking for in the advisors you bring on.

In short, growth shares let you recognise real impact without giving away more equity than you need to.

Common mistakes founders make with advisors’ equity

1. Giving away too much too soon: start small, you can always grant more shares or payment later.

2. No vesting schedule: make sure people only walk away with what they earn.

3. No clear deliverables: define what ‘advice’ actually means. Is it monthly check-ins? Specific introductions? A growth target?

4. Using the wrong share type: for the most tax-efficient and smoothest process, growth shares are your best bet.

5. Not documenting the arrangement: using a written agreement will help when assessing the success of the partnership.

Vestd: the easy way to manage equity

Issuing equity to advisors doesn’t need to be complex or risky. On Vestd, you can:

• Create and issue Growth Shares or Conditional Shares in a few clicks

• Set custom vesting schedules

• Store written agreements in a secure data room

• Keep your cap table up to date automatically

• Give advisors a dashboard view of their equity and vesting progress

It’s a simple, secure way to handle sweat equity - without the spreadsheets, lawyers, or admin burden. Book a call to find out more.