I am an advisor to a couple of Companies and meet the founders regularly to help them in their business.
Also, I get proposals to help start ups, etc and join their advisory boards.
So far, I could never calculate out the delicate equation between how much time to dedicate to a Company vs the equity offered to me or held by me in the Company.
All of a sudden, this struck me:
– Assume that founders work 10 hours a day, 20 days a month (officially)
= 200 hours a month.
When they start a Company, they own 100% of it.
So, 200 hours a month = 100%
– Therefore, every 1 hour spent per month = 0.5%
This is the formula!
So, if someone asks you for 3 hours a month as advisory role, ask for 1.5% equity in return!
This equation may change as the Company gets funded and has a stated valuation, etc. but then the basic equation still holds its ground, because you are still not getting paid for your time unlike the VCs who paid and bought a stake.
So, if the Company has got funded via Series A and the promoters now own say 30%, then the equation becomes:
200 hours = 70% (held by promoters)
So, advice per hour each month = 0.35% equity (post funding)!
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Facebook comment (after posting) of importance:
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Rosh An what if there are multiple founders and also the founders have invested in the startup initially say 10000 $ or whatever amount.
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Alok Rodinhood Kejriwal so adjust! if there are 10 promoters, then the company must be something! then 10*200 = 2000 hours = 100%, so 1 hour = 0.05%. So 3 hours = 0.15%
but i assume that 10 promoters + money would build at least the TAJ MAHAL or something!