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Entrepreneurs calendar    Nov 17, 2021

What is a Startup Advisor?

Learn about the role of a startup advisor and how they differ from mentors and consultants. Discover the key areas where advisors can provide support, and fnd out how to establish a successful advisory relationship!

We get the following questions a lot from our portfolio companies and from potential portfolio companies: What is a startup advisor?, How is this different from a mentor or a consultant? and, How does an advisor or “board of advisors” differ from a “board of directors”? 

The difference between a board of advisors and a board of directors is that a board of directors has a fiduciary commitment and responsibility to the common shareholders to protect their interests and finances. Advisors on the other hand typically are “advising” the company and specifically the founding team on what they feel is best and have no higher-order responsibility to shareholders or the company as a whole. While a board of advisors might be bound by an “agreement” or contract of sorts to execute specific tasks or provide specific connections or insights with something like the FAST agreement from Founders Institute, there is not necessarily a specific legally binding agreement between an advisor and a company (although we would encourage one!).

An advisor to your startup is someone who fills in gaps you and your founding team might have and advocate for you as a founder. As with most founding teams, there are inevitably things that you are great at and there are also other tactical items that you might need support in that you can hire, but there will inevitably be items that an advisor can help support with both operationally and strategically. Several of these areas that I’ve seen advisors particularly helpful on are below: 

  • Marketing – channel, direct to consumer, which platforms are areas should you be found and known in. Advisors can help you really narrow down where/how you should go about getting your product in the market
  • Product – advisors can help support with industry expertise on how to make a product minimally viable at the same time not turn away early adopters with a limited feature set
  • Technology – I’ve seen advisors help more on the front end with this especially with key technical hires for a non-technical founding team or the vetting of a development shop
  • Finance/fundraising – while these are necessarily intertwined I put them together because in the early stages much of your fundraising does depend heavily on how/where you are going to both increase and spend capital. 

The key is to make sure this advisor is able to guide and direct the solution you are building in the industry you are solving a problem in. These advisors must be trusted stakeholders that are intimately passionate about the ultimate success of the entity and have a relationship with you that allows for radical candor, meaning caring personally and challenging directly. You all have to have trust, transparency and communication in order to get down to real advice on the direction for the company. These advisors must have specific targets that you both agree to on how they will help support your company and you as a founder. I am not suggesting that you over instrument the relationship, but with any business relationship each individual or party should know why you all are together and what you both want to get out of it. I would encourage the founders and advisors to agree on deliverables that are specifically measurable and time-bound. As an example, you may want to receive 20 introductions to venture funds and 3 months worth of pitch deck coaching at least an hour every other week in order to raise a $2M institutional seed round. 

Further, you should be proud to showcase your advisors, especially, to investors. As an investor, it gives me deeper confidence in your execution if you are able to convince high-caliber advisors to spend their most valuable asset (time) with you on solving the problem you are going after for little to no compensation. With that said, it is never too early to start talking to and bringing advisors on board to help you think through and execute the solution you are building. Be cautious before you start to offer equity or other compensation until you have narrowed in on the actual product or solution you are building. There have been situations where founders give away equity in the company too early before having to pivot two or three times, finding themselves in a position where they have advisors onboard who then no longer fit the longer-term pathway for the company. In line with that if you have had someone advising you on the company and the direction for 6-12 months and they won’t be advising you in the future, as a courtesy you could extend it to allow them to be an angel investor alongside a market-driven term sheet or SAFE when you do raise capital. 

On the compensation side of the house – quite different from a consultant – there is rarely (if ever) a substantial amount of actual cash compensation related to an advisory member. The only caveat that I would add is if that advisor is spending a substantive amount of time (10 or more hours per week) on your project or company. Make sure your advisor is also being transparent with you on their expectations. I have unfortunately seen cases where an advisor will start “billing” by the hour and not tell the founder they are doing so until they receive an invoice. Hence the need to put things on paper. Most advisory members are compensated with equity in the range between 0.25% and 1% of shares. This is heavily dependent on the stage and the experience of the advisor. If you’re looking for more information on an advisory agreement I recommend looking into the FAST agreement and see how they break it down for deeper detail. 

You want to ask yourself what the advisor’s role is in your company and what he or she is bringing to the table before you formally enter into an advisory relationship and definitely before you provide any type of equity to them. Unfortunately, I learned this from my own past startups providing equity to advisors who promised a lot but once the equity was awarded, they seemingly no longer had time to connect and were along for the free ride. To avoid this, make sure every piece of equity you disperse other than to investors should have a vesting schedule.

As early and intimate as these advisors are involved with your company, they should come from a trusted second-order connection. Perhaps once you grow and scale, others might be genuinely interested in advising the business, but building an early-stage company is difficult. You need advisors that are close enough and trusted enough to call it how it is and not just coddle you with what you want to hear. The best place I’ve found and seen folks find advisors is LinkedIn, please connect with me, Patrick Henshaw, if you haven’t already here, I love helping people in my network connect to other people in my network. When I was building my first startup I didn’t have an expansive network and frankly zero network in the venture space which is a whole new world to many first-time founders. 

Do you know of a company that is interested in additional capital to grow? Please reach out to us and let us know how we can help. Thanks for reading and please make sure you subscribe to our newsletter, follow us on Twitter and LinkedIn to stay up to date with all the great things our team is up to!

Managing Director

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