equity, angel-investors, exit, seed, partnersWe are an IT startup completing our prototype with two IT/scientific people on board. Currently we need the seed money amount of 200K. We’ve already raised 50K and working with a potential customer. Two business persons (they are friends of each other) suggested to be our business advisors for 5% equity for each. For that they are going to help us 4 hours a week for a period of 1.5 year for raising money and business development.
Is it a good deal? Probably there should be other conditions of the deal?
4h of work for 1.5 years is slightly less than two months worth of work in total. Spread over a year and a half makes it extremely low risk, too.
So, yeah, I’d say 5% sounds like a great deal for them. Any odds you need a third advisor? :-)
More seriously, my understanding is that SV advisors typically get something closer to 1-2%. I’m not familiar with the terms they usually get, but in your shoes I’d make sure it’s vested and tied to results for good measure. And/or if appropriate I’d pay them on a commission basis.
5% is actually fair if they are genuinely expert in their areas and able to help you succeed. A good networked connection is often very useful, and could easily worth more than the 10% they ask.
Instead of thinking how many hours they work, you should ask yourself how exactly they can help you. Are they really good? Do they have good network connection? What about their history? Do you trust them? Will they just give you plain advice on what you should be doing? Will they introduce their connections to you?
You should also offer vesting period and give clear performance expectation.
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