Advisors, as the name says, can give advice that becomes the difference between success and failure for an entrepreneur. But beyond words advisors can also provide several other values:
- Credibility — within your company and outside, including to potential hires
- Access — to new people and opportunities especially potential customers
- Capital — many advisors are investors themselves or have access to people who are
- Governance — something really a board does but a benefit especially at the earliest stages of a company
This post is focused on 4 ways in which you can work most effectively with these individuals with a caveat. The perspective here reflects 20 years in Silicon Valley having been an entrepreneur who recruited Advisors, a VC who interacts with many Advisors, and been an Advisor myself, but it’s certainly not comprehensive of continuously evolving norms, especially in other parts of the world.
1) Equity aka (In)vested In Your Success — Some Advisors will engage with you because of a pre-existing relationship or simply to be helpful. But even in those cases the general advice no pun intended is to compensate them for their time. Three things to consider:
- i) equity grant — Something like 0.1% of the stock at the earliest stages (pre seed, seed, A) is typical, with the expectation the Advisor will give you about an hour a week. ii) vesting — The standard for hires is 4-year monthly vesting but unlike them, Advisors often get a shorter vesting of 2 years. The idea is to make it easier for an Advisor to commit to ongoing mentorship and for the entrepreneur to be reassured they are not giving away too much stock. It’s especially unpleasant to break an Advisory agreement because it primarily involves a relationship of good faith. And if things work out really well, you as an entrepreneur can always extend the agreement. iii) cliff — The standard for hires is 1 year cliff but for Advisors the cliff is usually absent. The thinking is they are not formal employees so do not add a barrier upfront to appreciate their time.
2) What Kind Of Advisors — Looking to sell into hospitals? Get some influential doctors to champion you. Needing help with fundraising beyond your own investors? Get a retired VC to be your shepherd. Seeking to understand the tech stack of robotics as applied to a car? Get VP of Engineering from a couple OEMs to open the hood for you. Bottomline the kind of advisors you get is really dependent on what you want to optimize in your company, or whatever weak spots you want to address the most. A key consideration is whether you are looking for Advisors to add breadth or depth and thus, if you want folks with different or similar expertise. Doling out equity is usually not the limiting factor, your biggest non-renewable resource is your time.
3) How Many Advisors — If you are looking for Advisors to build primarily credibility and by consequence brand then err on the side of more. In a sports-related startup it could mean 10+ athletes, in a media-related startup it could mean 10+ actors. But if your goal with an Advisor is primarily for mentorship then having a smaller number is probably the right call. As a founder you will already be stretched then working with management, employees, investors, customers, just to name a few, and in order to have meaningful conversations you can probably really interface with 3-4 Advisors.
4) Conflicts Of Interest — My experience is it’s rarer for Advisors than for VCs that they want to but can’t take a role with you. Reason here is the advisory engagement is usually around specific topics and they are simply exposed to less company-confidential information. That said, the consequences are paid really by the entrepreneur and you definitely want to avoid an Advisor working with direct competitors. Standard Advisory agreements do include a provision of termination of the formal relationship in cases of conflict but legal triggers aside, best is to always have a conversation upfront about potential conflicts of interest. Likewise, it’s a good idea to check in on this topic regularly, perhaps once every three months, since your company and the Advisor’s commitments will keep evolving.
Originally published on “Data Driven Investor,” am happy to syndicate on other platforms. I am the Managing Partner and Cofounder of Tau Ventures with 20 years in Silicon Valley across corporates, own startup, and VC funds. These are purposely short articles focused on practical insights (I call it gl;dr — good length; did read). Many of my writings are at https://www.linkedin.com/in/amgarg/detail/recent-activity/posts and I would be stoked if they get people interested enough in a topic to explore in further depth. If this article had useful insights for you comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are my own.