Advisory shares: vesting, cliffs and what to negotiate

Start with what the market actually pays, not with what the templates recommend.

The FAST Agreement — the Founder/Advisor Standard Template from the Founder Institute — is the most widely used framework, and it sets out a three-by-three matrix of company stage against involvement level. It is a useful structure. But it was written as guidance, and the market has settled well below its midpoint.

Only around 10% of pre-seed advisers receive stakes of 1% or more. If you are being offered 1% at seed, either you are delivering something exceptional and specific, or the company has not benchmarked and will regret it at the next round.

Adjust upward only for verifiable value: a named investor relationship that has produced a cheque, a customer introduction that converted, a specific regulatory problem you have solved before.

Two years, monthly, with either no cliff or a short trial cliff. That is the market standard and there is little reason to deviate. Two years, not four: four-year vesting is an employee schedule, and an adviser relationship still delivering value in year four has become something else and should be renegotiated as such.

Monthly rather than annually, so a relationship that stops working can end without either side losing everything. A three-month cliff is reasonable, because both sides get a trial; anything longer than six months on an adviser grant is the company transferring all the risk to you. Single-trigger acceleration on a change of control is worth asking for, because if the company sells in month fourteen unvested adviser equity usually evaporates. And get the leaver provisions in writing, both ways.

Test the relationship informally for two or three months before any grant. Both sides find out more in that period than in any negotiation.

This is where the American guidance stops being useful. EMI is almost certainly unavailable to you: Enterprise Management Incentive options are the UK's most tax-advantaged scheme, but they require the holder to be an employee, or a director committing at least 25 hours a week to the company. An adviser is neither. A non-executive director working one or two days a month is not either. CSOP applies a similar working-time test.

What you will actually be offered is one of two things. Unapproved, non-tax-advantaged options: simple to grant, no HMRC approval needed, with income tax arising on exercise on the difference between the exercise price and market value, and possible National Insurance and PAYE consequences for the company. Or growth shares: a separate class that only has value above a defined hurdle, acquired cheaply at grant because the hurdle makes them worth little at that point, with growth taxed as capital rather than income. More paperwork, better treatment, and increasingly common for UK advisers.

There is no 83(b) election and no 409A valuation in the UK. The rough equivalents are a section 431 ITEPA election on restricted securities, which can prevent later growth being taxed as employment income, and an HMRC-agreed valuation. The mechanics are different enough that following an American article will get you the wrong answer.

And if you are investing rather than being granted, SEIS and EIS relief may be available — but the connection rules interact with directorship and remuneration in ways that are easy to fall foul of and impossible to unwind afterwards. Check eligibility before you subscribe, not after.

Is there a written agreement — a FAST or equivalent? No agreement, no deal. A percentage of what, exactly: fully diluted, including the option pool, or a number that will shrink? What instrument: unapproved options, growth shares, or actual shares, which are not interchangeable? What is the exercise price and how was it set?

What are the vesting, cliff and acceleration terms on a change of control? What happens on a down round — is there any anti-dilution, and realistically, no? What is expected of you, in hours per month, in writing, because "as needed" is how two hours becomes eight? And the tax position, checked by someone who works in UK share schemes.

Cap total advisory equity at around 5%. The median startup allocates 2% to 4% across all advisers by Series A — and roughly half of those advisers have stopped contributing by the time that round closes.

That last figure is the argument for short vesting and clear leaver provisions. Advisory equity granted generously in year one and never revisited is one of the commonest avoidable problems on an early cap table, and it is the first thing a Series A investor's lawyer will find.