As former serial operators and having served as advisors of many companies, my partner, Craig Cummings, and I are very familiar with the formal advisor role. Many early-stage founders we meet casually toss the “advisor” word around and often fill their team slide with as many as 5–8 high profile advisor names, but we find that some don’t fully understand what advisors do or how to engage them. In this article, I want to demystify the advisor role and provide entrepreneurs with some guidelines for how to find, engage with, and get the most out of their advisors.
So who would make a good advisor?
We have found that the most impactful advisors share a few qualities:
- Domain or Functional Expertise. They have some special and deep domain expertise — whether that be in a specific sector such as cybersecurity or fintech, or in a specific function, like marketing or finance. It is important to understand your prospective advisor’s real expertise, and exactly how that will help the company. Just putting someone’s name on the slide doesn’t help and most investors know that.
- Stage Specific. The most effective advisors also normally have a stage-specific capability of assisting based on their background and/or their network — meaning their experience and advice/assistance are applicable to very young companies or to more mature companies. The bigger and more well-known the name, the more likely that advisor is going to be better positioned to help a more established company. The younger the company, typically the more the advisor will need to roll up their sleeves and get to work since there are so few resources. We’ve found that very few advisors can be effective through the entire life cycle of a company so know and understand the advisor’s appetite for “heavy lifting”.
- Passion. Finally, and probably most important, the advisor has to want to be involved with you and the company in order to really engage and add value. While that is difficult to gauge with a first-time advisor, a little bit of due diligence with the founders at their previous advisory roles should give you a good sense of what you should expect. To guard against overpaying, you can structure the advisory agreement in a way that minimizes this risk.
Now that I know what to look for in an effective advisor, where do I find one?
Advisors come from all different walks of life and you can find them just about everywhere. We’ve had the most success sourcing advisors from a few target-rich environments:
- Angel Groups. Most angel groups are comprised of retired (or semi-retired) successful entrepreneurs. This means that most of the group has some domain, functional and stage-specific experience AND they have some time available to really assist. The groups typically have monthly or quarterly meetings and some of those are open to non-members. If you socialize in this environment, even a few times, you should quickly be able to determine who has the qualities listed above and with whom you have good chemistry.
- Accelerators/Incubators. Most accelerators and incubators now recruit formal “mentors” from the tech community and put them to work with the portfolio companies. If you can get your hands on this list (many times they are included on the accelerators’ websites) you have a great shopping list for your next advisor. Their full backgrounds are frequently included and they’ve already “opted in” so to speak as they are excited to help start-up companies. For instance, Capital Factory has about 200 mentors who are local Austin executives, entrepreneurs, and domain experts who are highly active in supporting the Capital Factory/Central Texas startup ecosystem. Each mentor usually provides two hours of office hours a month and is also available to founders via the Union platform. They frequently become formal advisors to companies.
- Industry Events. While you are attending events specific to your industry, ensure you network aggressively, and pay attention to all the panelists. It is pretty easy to see who is well-regarded and who is just a talking head. Frequently you can meet both industry and functional specialists in these environments. It is also a perfect place for getting a quick read on chemistry in an informal setting.
- Local Tech Organizations. These are especially good for sourcing functional experts for advisory roles. For instance, here in Los Angeles, Tony Karrer runs the CTO Forum of Southern California. The group meets monthly and is chock full of, you guessed it, CTOs. So, if you’re looking for technology advisory assistance, you can find every stage and domain technology expert all in one place. And if one of them is not willing or able to help at the time, they can frequently point you to someone that is ready, willing and able.
- Fellow Entrepreneurs. Ask your kindred spirits for help. Be specific about the type of mentor you are looking for — “massive Rolodex and will make pointed introductions” or “product specialists focused on cybersecurity” or “sales expertise that can help us develop a playbook” — will all get very different responses. But, if you are precise, you can find exactly what you are looking for. Many of the most effective advisors I’ve worked with have come from referrals from other entrepreneurs.
- Online Forums. There are a number of websites that can provide very good insight into whether or not someone would be a good advisor. Certainly, LinkedIn and AngelList profiles will show if someone already has experience as an advisor and you can learn a LOT about what sectors they like. However, it is challenging to fully engage an advisor without meeting them in person. You can do it, and right now, you have to do it that way because of the pandemic, but it is very important that you develop a personal relationship with your advisor. These tools are also especially helpful in conducting due diligence on your target advisor.
No matter where or how you target and meet your prospective advisor, you are going to have to convince them that you are worth the effort. So just as you would an investor, you have to excite them enough that they want to invest their time, reputation, and Rolodex in you and your company. You have to sell them.
I was able to find an advisor I like, now what?
The advisor title sounds pretty cool…almost like you work for them and they tell you what to do. Well, guess what, they work for you! Expectation management with advisors, like most relationships, is critical for success. From the very beginning, you should outline explicitly what you expect from the advisor as well as how and what they will be compensated for that activity. For example, if you are bringing on an advisor to assist you with business development you could offer something as simple as this as a starting point:
- Advisor will:
a. Attend one 30-minute business development call per week.
b. Attend one 1-hour in-person meeting with the senior management team 1x per month.
c. Review and provide feedback on all business development collateral 1x per month.
d. Make 5–10 direct introductions to potential customers/partners every month. - Compensation: In exchange for the above activities, Company will grant advisor options on shares totaling 0.5% (or an option to purchase a specific number of shares) that will vest ratably over 24 months. If you engage the advisor beyond “normal” expectations, be prepared to offer more options. We usually see 1% at the high end for an advisor who is very actively engaging, including helping recruit talent. Though rare, we see some advisors seeking more than 1%, and those are sometimes “celebrity” names. We caution against having them as advisors based solely on their name because they usually don’t have the cycles to roll up their sleeves and do hard work.
While the above numbers are just an example, the process really is that easy. Once you and your new advisor go back and forth and reach an agreement on these items a few times, have your legal counsel turn an agreement. The Founder’s Institute has a great template here that also includes suggested equity bands. Once signed you can then hold the advisor accountable for delivery. Typically, you have a lot of work to do to make them effective… advisors aren’t magicians, they can only work with what they are given. So, think hard about what the advisor will need to be successful. In the example above, you will need to have developed effective selling collateral, a targeting list from which the advisor can work, and resources to follow up on the introductions made by the advisor. But with this plan, you can hold the advisor accountable.
Another important consideration is whether or not your advisor will also be an investor. Some advisors are investors and others are not. This depends completely on the advisor. If they have a history of making angel investments, then it may actually cause questions if they have not invested in your company. Also, from your position, if they invest it does show they have “skin in the game” other than their time.
What if I want to break up with my advisor?
Nothing lasts forever. As I mentioned above, very rarely can an advisor evolve through all of the phases of a company’s growth so the advisory work will likely end at some point. I recommend a two-strike rule… The advisor can miss on one of the deliverables, but if they miss on two especially in the beginning, they are done. Obviously, you will need to evaluate if you are getting value from the relationship and I would recommend doing that formal, sit-down evaluation quarterly. One of the biggest mistakes entrepreneurs make with advisors is letting advisors continue to vest options because they are afraid of confrontation or of what the advisor might think. Believe me, if you aren’t happy, then they likely aren’t happy either. Prolonging that doesn’t help anyone and you could put that equity to good use with someone else. During your quarterly review of the advisor’s performance, be clear about any shortcomings or requests for change. If you are not satisfied, end the agreement and stop vesting the options.
Summary
Advisors can be very valuable assets to your company, but you must:
- Look for relevant domain, function, and stage experience.
- Hunt for advisors just like you would hunt for any talent you want to add to your team.
- Confirm they are as excited to help you as you are to have them help.
- Set clear expectations on performance when negotiating the deal.
- Do the work to enable the advisor to be effective.
- Evaluate their performance quarterly.
- Save equity and end the relationship if the advisor is not performing.
And whatever you do…do NOT simply add a list of “well-known” names to your pitch deck and call them advisors without doing all the work above.
Moonshots Capital is a military veteran-founded venture capital firm that invests in early-stage startups with extraordinary leaders.
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