Every successful startup has a story about an advisor who opened the right door at the right time — an introduction to a lead investor, a steer on product-market fit, or a blunt conversation that stopped the founders from making an expensive mistake. Good advisors are genuinely valuable.
The problem is that most startups structure their advisor relationships badly. They hand out equity on a handshake, skip the paperwork, and end up with someone on their cap table who stopped returning calls six months ago but still holds shares. Or they draft an agreement so vague that neither side knows what’s actually expected.
Here’s how to get it right.
What Is an Advisory Agreement?
An advisory agreement is a contract between a startup and an individual advisor. It sets out what the advisor will do, what they’ll receive in return (usually equity), and the terms governing the relationship.
The advisor is not an employee. They’re not a director. They’re an independent consultant who provides strategic guidance, introductions, or domain expertise on a part-time, informal basis — typically a few hours per month.
This distinction matters. Because the advisor isn’t an employee, the relationship isn’t governed by the Fair Work Act 2009 (Cth). There’s no minimum engagement period, no unfair dismissal risk, and no entitlement to leave or superannuation — provided the arrangement is genuinely one of independent contracting. Getting the classification wrong (for example, by imposing employee-like obligations on the advisor) can create unintended employment law consequences.
What Advisory Shares Actually Are
“Advisory shares” isn’t a legal term of art. It’s shorthand for equity — usually ordinary shares or options over ordinary shares — granted to an advisor in exchange for their services.
In the Australian context, advisory equity typically takes one of two forms:
Ordinary shares. The advisor is issued shares in the company, usually at nil or nominal consideration. This is straightforward, but it means the advisor is an immediate shareholder with voting rights and a place on your share register. If the relationship sours, those shares don’t come back unless you’ve structured the arrangement to allow for that.
Options. The advisor is granted options to acquire shares at a future date, usually at a nominal exercise price. The options vest over time. This is generally the better approach because the advisor doesn’t become a shareholder until they exercise, and unvested options can lapse if the relationship ends early.
How Much Equity to Offer
The standard range for advisor equity is 0.25% to 1% of the company’s fully diluted capitalisation. Where an advisor falls in that range depends on several factors:
- Stage of the company. Earlier-stage startups typically offer more equity because the risk is higher and the advisor’s impact is proportionally greater. A pre-seed advisor who helps you land your first enterprise customer is worth more equity than someone advising a Series B company on the same introduction.
- Level of involvement. An advisor who commits to monthly meetings and actively makes introductions warrants more equity than someone who’s available for occasional calls. The Founder Institute’s FAST Agreement — the most widely used template internationally — draws a useful distinction between “Standard” advisors (one hour per month, 0.25%), “Strategic” advisors (two to three hours per month, 0.5%), and “Expert” advisors (five or more hours per month, 1%).
- The advisor’s profile and network. A well-known operator or investor with a relevant network commands more equity than someone with general experience.
A common mistake is over-allocating advisory equity early on. If you give 1% to each of five advisors before you’ve raised a priced round, that’s 5% of your cap table allocated to people who may or may not deliver value. Be selective. Two or three well-chosen advisors are better than a bloated advisory board.
Vesting: The Non-Negotiable
Every advisory equity grant should vest over time. No exceptions. Vesting protects the company by ensuring that the advisor earns their equity incrementally, and that unvested equity is forfeited if the relationship ends prematurely.
The standard vesting schedule for advisors is:
- Two-year vesting, with monthly or quarterly vesting increments.
- A three to six month cliff, meaning no equity vests at all until the advisor has been engaged for at least three to six months. This gives both sides a trial period.
This is shorter than the typical four-year employee vesting schedule, which reflects the fact that advisory engagements are less intensive and shorter in duration.
If an advisor pushes back on vesting, that’s a red flag. An advisor who expects to receive their full equity allocation on day one, without any obligation to remain engaged, is not someone you want on your cap table.
The FAST Agreement and the AirTree Template
You don’t need to draft an advisory agreement from scratch. Two templates are widely used in the Australian startup ecosystem:
The FAST Agreement (Founder/Advisor Standard Template), created by the Founder Institute, is the international standard. It’s a one-page document that covers the advisor’s role, equity allocation, vesting terms, confidentiality, and IP assignment. Its simplicity is its strength — it’s designed to be signed quickly without extensive negotiation.
AirTree’s Advisor Agreement Template is an Australian-specific adaptation of the FAST framework. It’s drafted for Australian law, uses language appropriate for Australian proprietary companies, and addresses issues like the ESS tax regime (more on this below). If you’re an Australian startup, this is the template to start with.
Both templates are freely available online. Neither is a substitute for legal advice — they’re starting points that should be customised to your specific circumstances.
Key Clauses to Get Right
Regardless of which template you use, these are the clauses that matter most:
Scope of Services
Define what the advisor is actually going to do. “Provide strategic advice” is too vague. Spell it out: introductions to potential customers in a specific sector, guidance on go-to-market strategy, mentorship to the founding team on fundraising. The more specific the scope, the easier it is to assess whether the advisor is delivering value — and the easier it is to end the relationship if they aren’t.
Confidentiality
The advisor will inevitably learn sensitive information about your business — your revenue, your product roadmap, your fundraising plans. The agreement must include robust confidentiality obligations that survive termination of the advisory relationship. This is non-negotiable, particularly if the advisor works with other startups in your space.
IP Assignment
If the advisor contributes anything that could constitute intellectual property — a framework, a strategy document, code, designs — ownership should vest in the company. Include a clause assigning all IP created in connection with the advisory engagement to the company.
Termination
Either party should be able to terminate the advisory relationship on reasonable notice (30 days is standard). On termination, vested equity remains with the advisor; unvested equity lapses. If you’ve issued shares rather than options, you’ll need a buyback mechanism — typically a call option allowing the company to repurchase unvested shares at the original issue price.
Non-Compete and Non-Solicitation
Be cautious here. Advisors are, by definition, people with broad networks and expertise. A non-compete that prevents them from advising other startups — even competitors — will be unreasonable and unenforceable. A narrowly drafted non-solicitation clause (preventing the advisor from poaching your employees or soliciting your customers) is more appropriate and more likely to hold up.
Tax: The ESS Regime
In Australia, advisory equity grants can fall within the Employee Share Scheme (ESS) rules in Division 83A of the Income Tax Assessment Act 1997 (Cth) — even though the advisor isn’t an employee. The ESS rules apply to shares or options acquired “in relation to” an employment-like relationship, and the ATO takes a broad view of what qualifies.
If the ESS rules apply, the advisor may be taxable on the discount — the difference between the market value of the shares and what they paid for them — either at the time of grant or at a later “deferred taxing point.” For eligible startups (unlisted companies with an aggregated turnover of less than $50 million and that have been incorporated for less than 10 years), the startup concession under Subdivision 83A-E can provide significant tax relief. Under this concession, shares or options issued at a small discount are not taxed at grant and are instead brought to account under the capital gains tax regime on eventual disposal.
The critical point is that the equity grant needs to be structured correctly to qualify for the startup concession. Getting this wrong can result in the advisor facing an unexpected tax bill on shares they can’t yet sell — which tends to end the advisory relationship quickly.
Practical Tips for Founders
Start with options, not shares. Options give you more flexibility. The advisor doesn’t appear on your share register until they exercise, and unvested options lapse automatically on termination. This is cleaner for your cap table and easier to manage.
Always use vesting with a cliff. This protects you from the advisor who is enthusiastic in month one and invisible by month four.
Put it in writing before the advisor starts. Don’t issue equity on a handshake and plan to “sort out the paperwork later.” The paperwork is the relationship. Without it, you have no enforceable vesting, no confidentiality protection, and no clear mechanism for termination.
Review your cap table impact. Before granting advisory equity, model the dilutive effect. If you’re planning to raise a priced round, your investors will scrutinise the cap table. A clean, well-documented advisory equity structure signals sophistication. A cap table littered with poorly documented advisor grants signals the opposite.
Get tax advice. The ESS rules are complex, and the consequences of getting the structure wrong are material — for both the company and the advisor. Spend the money on a tax opinion upfront.
The Bottom Line
Advisors can be one of the highest-leverage relationships in your startup — but only if the arrangement is structured properly. A clear agreement, sensible equity allocation, vesting with a cliff, and correct tax treatment are the foundations. Get those right, and you’ll build advisory relationships that actually deliver value. Get them wrong, and you’ll end up with dead equity on your cap table and a lesson you’ll wish you’d learned earlier.
If you’re setting up an advisory board or structuring an advisor equity grant, get in touch. We help Australian startups get these arrangements right from the start.
