What Is a Startup Advisor?

We get the following questions a lot, from both our portfolio companies and 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”?

Advisors vs. 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 advise 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 to execute specific tasks or provide specific connections, there is not necessarily a 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 who advocates for you as a founder. As with most founding teams, there are inevitably things you are great at and other tactical items you might need support in. Several areas where I’ve seen advisors be particularly helpful:

• Marketing, channel strategy, direct-to-consumer, and which platforms and areas you should be found and known in. Advisors can help you narrow down where and how to get your product into the market.
• Product, industry expertise on how to make a product minimally viable without turning away early adopters with a limited feature set.
• Technology, especially on the front end, with key technical hires for a non-technical founding team or the vetting of a development shop.
• Finance and fundraising, in the early stages, much of your fundraising depends heavily on how and where you plan to increase and spend capital.

Structuring the Relationship

The key is to make sure an advisor can guide and direct the solution you’re building in the industry you’re solving a problem in. These advisors must be trusted stakeholders who are intimately passionate about the ultimate success of the entity, and who have a relationship with you that allows for radical candor, caring personally and challenging directly. You have to have trust, transparency, and communication in order to get down to real advice on the company’s direction.

Advisors should have specific targets you both agree to. I’m not suggesting you over-instrument the relationship, but with any business relationship, each party should know why you’re together and what you both want to get out of it. I’d encourage 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 three months of pitch deck coaching, at least an hour every other week, in order to raise a $2M institutional seed round.

You should be proud to showcase your advisors, especially to investors. As an investor, it gives me deeper confidence in your execution if you can convince high-caliber advisors to spend their most valuable asset, time, with you for little to no compensation. It is never too early to start talking to and bringing advisors on board. But be cautious before you offer equity or other compensation until you’ve narrowed in on the actual product you’re building. There have been situations where founders give away equity too early, before having to pivot two or three times, and find themselves with advisors onboard who no longer fit the company’s longer-term path. In line with that: if someone has advised you for 6-12 months and won’t be advising you in the future, as a courtesy you could allow them to be an angel investor alongside a market-driven term sheet or SAFE when you raise capital.

Compensation

On compensation, quite different from a consultant, there is rarely, if ever, a substantial amount of cash compensation for an advisory member. The only caveat is if the advisor is spending a substantive amount of time, 10 or more hours per week, on your company. Make sure your advisor is transparent with you on their expectations. I’ve unfortunately seen cases where an advisor starts “billing” by the hour and doesn’t tell the founder until an invoice arrives, hence the need to put things on paper. Most advisory members are compensated with equity in the range of 0.25% to 1% of shares, 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 from Founders Institute.

Ask yourself what the advisor’s role is in your company and what they’re bringing to the table before you formally enter into an advisory relationship, and definitely before you provide any equity. I learned this the hard way in my own past startups, providing equity to advisors who promised a lot but, once the equity was awarded, seemingly no longer had time to connect. To avoid this, make sure every piece of equity you disperse, other than to investors, has a vesting schedule.

As early and intimately as these advisors are involved with your company, they should come from a trusted second-order connection. Once you grow and scale, others might be genuinely interested in advising the business, but building an early-stage company is difficult, and you need advisors who are close enough and trusted enough to call it how it is, not just coddle you with what you want to hear. The best place I’ve found to source advisors is LinkedIn. 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.