We know, most start-ups have a Board of Advisors, but who are they and what are their roles and responsibilities? I highly recommend that start-ups not only have Board of Advisors, but also make full use of their expertise, strategic advice, and network. I will focus on four key take away (4KTA) points on this topic, based on my own experience, and other entrepreneurs that I’ve been associated with over the years.
1. Understanding Roles and Responsibilities – How do you define a Board of Advisors? The Board of Advisors consists of individuals willing to help and advise the start-up founder based on their expertise. They give access to expertise that the company may not have, increase accountability for moving one step closer to its goals and help the team think strategically leading to improved decision making. A start-up advisory board usually consists of 4 to 6 individuals who meet periodically but don't have legal responsibility for operations. There are two types of advisors that I have used - Business and Technology Advisors. Business Advisors help with Funding strategy and contacts, introdusing to customer prospects and companies that can eventually be strategic partners and act as a selling channel for the product and services. Technical Advisors are domain experts, either from academia or companies and doing cutting edge research. They provide guidance on technical approach, sounding off ideas, and validating if the team is heading in the right direction.
2. Finding and Recruiting - How and where do you find and then, recruit your Board of Advisors? The first thing to do is to determine who you would like as an advisor, based on your needs. Now to get them on board, you get an introduction through someone who knows them, or try to meet them at professional events such as The Indus Entrepreneur (TiE) events, TiECon, and other industry events. Upon meeting your target advisor, ask him or her directly, if they would consider being on your advisory board. My experience tell you directly is that they will tell you if they may be interested or have a conflict. If there is no conflict of interest, request a follow up meeting to discuss expectations and next steps.
For first time entrepreneurs, my recommendation is, to find a former entrepreneur who has successfully exited a company, either by selling it to a larger company, or by taking it public. Ideally, this person has gone through the entire process of founding a company, recruiting a team, raising capital, leading product development, and launching it successfully. This advisor can help you on funding and product strategies, as well as strategic industry contacts. If you can’t find someone with this background, then find multiple advisors, each with a unique expertise. For instance, one being an expert in marketing, business development and industry contacts our experts, one in funding sources. With un understanding of your market can easily introduce customers and industry partners. These partners can become selling channels for products and be potential candidates for acquiring your company. Partnering with a large corporation helps in four ways – First, in validating your technology, product and market segment. Second, it implies a product gap in their portfolio and hence, the need to sell your product as part of an overall solution. Third, should this partner decide to own this technology, they could acquire your company and hence, an exit strategy for you and investors. Fourth, citing a large company as strategic partner to new customers becomes a great reference and selling tool. For recruiting technical advisors, you can directly contact university professors, who are experts in your domain. My experience is that they are approachable and open to working with entrepreneurs. For recruiting technical advisors from industry, use similar strategy, as mentioned earlier in this section.
3. Setting and Managing Expectations – What do you expect from your Board of Advisors? One key lesson that I learned from an angel investor in my first company was about setting and managing expectations. It is important that expectations are defined and agreed clearly upfront to avoid any misunderstanding later. Now, managing them is even more critical to ensure that these move in the right direction for achieving your goals. Many entrepreneurs don’t follow up after signing up an advisor. My recommendation is to contact them proactively and frequently to ensure that progress is being made. In general, most entrepreneurs are happy to share their hard learned lessons, experiences and mistakes. Believe me, you can learn a lot from their mistakes instead of repeating them yourself thereby losing time, money and resources. The next step is to have signed advisory agreements in place. You can get these from your legal counsel. These agreements provide in detail the role and responsibilities, expected length of agreement, expected hours of work every month, compensation, non-disclosure and termination clauses, etc.
4. Compensating for Services – How do you compensate your Board of Advisors? Most entrepreneurs you seek out to be your advisors already know that start-up companies are low in cash and are always looking for money. They understand it well, and therefore, they are fine in getting paid in some equity and hence, being a partner in your success. If you have to pay cash for advisory services, then keep it to a very low amount. The equity granted for the advisory services depends upon the expectations agreed upon and the amount of time. The standard equity structures for compensating advisors can be obtained from a legal counsel experienced in working with venture capital funded start-up companies. Of course, you need to figure out how important an advisor is to your company at that particular stage. If you are an early stage start-up, the equity percentage may be higher. Successful entrepreneurs willing to serve as advisors are quite reasonable in their expectations and also know the equity structures professional investors expect and invest in. Hence, they will ensure that it is not out of line from typical norms in the industry.
In summary, my four 4KTA (four key take away) points in creating an excellent Board of Advisors are understanding roles and responsibilities, finding and recruiting, setting and managing expectations, and compensating for services.
The author is a serial entrepreneur and Board Member, Chair – Programs, The Indus Entrepreneur (TiE ) and member of TiE Angels Steering Committee, based in Silicon Valley, California.