Advisors and Startups
Over the last few years I have came accross different situations that involved start-ups and advisors. Some excellent, some average and some pretty bad so I will summarize what I learned so far:
Only equity, not cash. Give advisors only equity (common stock preferably). If an advisor comes to you to give and asks for money, run away. It is not an advisor, is an employee.
Give small amounts. There is not golden rule here, but the idea is to give something small to each advisor, unless it is a super hotshot and will take you to the moon non-stop. Anywhere between 0.10% to 2% is what I am currently seeing, although there are outliers and just be well justified.
Vest, vest, vest. The advisors will provide value to the company in the long run. So make sure you are vesting their shares, so if the advisor rans away, he is just plain lazy or starts something that conflicts with your business you can terminate the agreement.
Separate roles of advisor and investor. It is somewhat common that an early-stage investor can also have an advisory role to the company. And that is just fine. Just make sure to separate these two roles (preferred shares usually for investors, common stock for advisors) because if things go bad you can terminate the advisory agreement and recover the unvested shares without touching the real money investment.
Change over time. It is not the same advisory board you need on a super early-stage project with a lot of focus on product development and technology than a later stage company with focus on expansion or growth. You get the idea, pick advisors that are stage-appropriate for your project.
Focus on value, not just names. Everyone wants big names on the advisory board, but it is often the case that they bring very little value on real life and day to day operations. Focus on what each advisor will bring to the table. Are your areas of pain related to B2B sales, a specific niche or vertical or mobile development? Then make sure you have core advisors there. And as I said in the previous point, areas of pain should change if you are doing the right stuff, so you will probably need new advisors as new challenges arise.
PS: Here is a good article that talks about the typical equity stakes for advisor and a good template for an advisory agreement document.