Meaning
Shares or options granted to startup advisors that remain subject to time-based or milestone-based vesting conditions represent a contingent ownership interest. This unvested advisory equity does not belong to the recipient until the vesting requirements are met over the service period. It is designed to ensure that advisors continue to provide guidance to the company over the long term.
The equity is typically issued under a restricted stock purchase agreement or an option plan.
Vesting Condition
Most advisory grants rely on specific vesting schedules that differ from typical employee vesting schedules. Because advisors often provide high-impact assistance over a shorter period, unvested advisory equity may vest monthly over one or two years without a one-year cliff. This structure aligns the reward with the advisor’s active contribution.
Acquisition Treatment
Corporate transactions require clear rules for dealing with outstanding advisor grants. A merger agreement may provide that unvested advisory equity is cancelled for no consideration, accelerated to vest at closing, or converted into unvested equity of the buyer. The treatment depends on the advisor’s expected role after the transaction.
This decision is negotiated before signing.
Forfeiture Consequence
If the advisory relationship terminates before the vesting milestones are met, any unvested advisory equity is automatically forfeited or repurchased by the company at the original cost. The company reclaims these shares to preserve the option pool. This process requires no financial payment to the advisor.
