Additional Question details (orig. on Quora):
CEO was only getting 3-5%. If that is the case, I can’t imagine they would give an advisor more than 1% which seems low.
Dan Walter’s Answer
I think that it is impossible to answer this question without far more information. This is a common issue that start-ups must address and it is often done without enough forethought. Here are just a few questions.
Michael Wolfe’s answer of 0.1% may be perfect. Brian Schuster may also be right at 3%.
This huge discrepancy is easily explained by not knowing the underlying details.
What will be your part in getting the company to $500MM? Is all $450 increase dependent on your actions? Your ideas? Is there a reasonable percentage of the gain that will be able to be demonstrably attributable to you?
Will this role be full time? Are there already multiple rounds of financing in place? Given that the CEO only has 3-5% I am assuming he/she is not a founder. If they are, then they probably have at least 5 rounds of financing in place (which seem pretty high for a $5M company.)
What is the likelihood of actually attaining $500M? How long will it take? Does this value include any the value of any potential future acquisitions or mergers (and their associated costs / dilution)?
I am sure their are tons of experts on Quora who can each add at least as many questions as I have in this quick post.
If the potential is 3% of $500M ($15M), it pays to do the groundwork in advance. If the potential is only 0.1% of $500M ($500K) then it pays to set limits on your effort.