Advisor equity: spend it like it’s your last pound, not your first

When cash is limited and equity feels free, it’s obviously tempting to use shares as a currency for advisors, early contractors, and helpful connections. But equity isn’t free — it’s the most expensive currency you’ll ever spend. Every percentage point granted to an advisor is a percentage point that isn’t available for future investors, key hires, or co-founders.

This piece covers the questions to ask before granting advisor equity, the structures that protect you if things go wrong, and three real examples of how well-intentioned equity grants turned into long-term problems.

The test to apply before granting equity

Before granting equity to any advisor, employee or contractor, ask yourself one question:

If this person disappeared for ten years and only showed up again at exit, would you still be happy giving them a significant payout?

That’s the test. If the answer is no — or even “maybe” — the equity structure needs rethinking. Either the grant shouldn’t happen, or it should be tied to performance milestones and a vesting schedule that means equity has to be earned over time.

Three real examples of how it goes wrong

These are composite examples drawn from portfolio experience, with details changed:

Example 1: A founder promised equity to a fractional COO on a six-month contract that was never completed and the equity never formally granted. Years later, when preparing for an exit, the unresolved question of whether equity was owed became a due diligence issue that cost significant time and legal fees to resolve.

Example 2: Another founder gave shares to an early developer who then emigrated and disappeared entirely. Seven years later, when the company was acquired, the team couldn’t locate this person for the paperwork. A five-figure payout was sitting unclaimed, and the exit process was delayed and complicated as a result.

Example 3: A third case involved a founder who granted equity to an early employee who became a vexatious litigant just three months after funding. The employment ended, but the equity remained. That person still sits on the cap table years later, a source of ongoing annoyance and occasional legal cost.

In all three cases, the equity grants were well-intentioned. In all three cases, they created long-term headaches that could have been avoided.

How to protect yourself

Use vesting schedules, always

Any equity grant to an advisor or early employee should vest over time, typically three to four years. Without vesting, you’re handing over the full value of the equity upfront regardless of whether the relationship continues or delivers value.

Tie grants to specific deliverables where possible

Rather than granting equity for a vague advisory relationship, tie it to specific outcomes: introductions made, revenue milestones reached, product shipped. This makes the relationship concrete and gives you a basis to wind it down if deliverables aren’t met.

Use an option pool rather than direct shares

Options are significantly cleaner than direct share grants. They don’t create immediate shareholders, they have defined exercise conditions, and they’re much easier to manage if the relationship doesn’t work out.

Document everything

An informal conversation about equity is not an equity agreement. Nothing should be communicated about equity without a written agreement, even if that agreement is as simple as an email confirming that no equity has been agreed.

The underlying principle

Equity is your most powerful tool for attracting talent and aligning incentives. Used carefully, it’s transformative. Used carelessly, it creates a trail of partial shareholders whose interests may not align with the company’s at the moments that matter most.

Spend it like it’s your last pound, not your first.

Originally posted on LinkedIn.