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The Most Expensive 0.5% You’ll Ever Give Away
- Founders often give away advisory equity in the early stages of startups without a solid plan, leading to potential long-term issues.
- Small equity grants, like 0.5%, can have significant consequences as the company grows and evolves, impacting valuation and investor confidence.
- Advisory equity, when unstructured, can create tension within the company, especially when it competes with equity for employees actually contributing to the business.
- While advisory equity isn't inherently bad, it requires clear structure including vesting schedules, deliverable documentation, and performance thresholds for genuine strategic value.
- Founders should think strategically about offering equity, ensuring it's not a substitute for structured compensation and that it aligns with the company's long-term goals.
- Cleaning up a bloated cap table filled with informal equity grants can be challenging, impacting negotiation power, credibility, and ultimately the company's success.
- Advisory shares granted without careful consideration can signal a lack of protection for the company, potentially impacting investor perception and pricing power.
- Founders are advised to be intentional with equity decisions in the early stages, ensuring that every advisor adds value, grants are tied to tangible contributions, and agreements are made with the company's best interests in mind.
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