As a startup founder, you probably look outside your core team and lean on your network and community to help fill gaps and break through business, technical or policy barriers. Or, maybe you’re a first-time, early-stage founder, and you’re still building a trusted network, or your startup community is still very new.
Formalizing support by establishing a small team of advisors (or an advisory board) can definitely help your startup. Like every key decision a founding team makes, it’s important to study the risks versus the rewards. Here are five key factors to consider when selecting your startup’s advisors:
1. Know the difference between an advisor, a mentor, and a consultant
Advisors tend to consult one-on-one with you as a founder and your team as needed. Their relationships with a startup are often formalized with a signed agreement, involve specific roles or domain expertise, and are typically compensated with equity. On the other hand, mentors are normally unpaid, operate informally, and often act as a sounding board for a founder. Consultants can play a similar role as advisors but are frequently hired to perform specific tasks or projects and are typically paid.
2. Identify distinct challenges where an advisor can bring value
For growing companies facing specific challenges, advisors can help fill critical gaps. For example, an electric scooter company that’s trying to break into a new city may need an expert who knows how to navigate regulatory roadblocks in its target market. Or a medical device maker could benefit from an advisor with connections to top academic or research institutions. Advisors can also prove invaluable when a startup begins hiring key staff or needs to ramp up sales and partnerships that may still be lacking certain subject matter expertise.
3. Start searching your networks
Finding advisors often starts with networking, like personal networks (friends, family) or professional and even educational networks. And with social media’s scale, the potential with these personal networks is huge.
Beyond personal networks, you should use every meeting with a potential angel investor as an opportunity for advisor referrals. Also, VCs have a network of professionals that are accessible to portfolio companies. And sometimes, mentors can morph into formal advisors if they have proven particularly valuable and a truly trusted relationship is in play.
4. Screen your advisors like new hires
Recruit and vet your advisors as if they were early hires. That means interviews, reference checks, and ensuring a prospective advisor does not have a conflict of interest (e.g., they may be advising another startup in the same industry). The ideal advisor is someone that’s completely aligned with your best interests. That may mean finding someone with the right kind of expertise in the market you’re targeting, or it means looking beyond the advisor’s name and reputation and ensuring you can have a meaningful working relationship.
A startup’s needs can change quickly, so you shouldn’t hesitate to replace advisors as priorities shift. Indeed, you may want to assess your advisors every six months or so to identify whether anyone is no longer needed. If you hired top-notch folks, they might even help with that process, as the best advisors know when to step down.
5. Carefully craft your advisor agreement
A detailed agreement with your advisors should be drawn up at some early point, including a carefully crafted equity compensation arrangement and defined roles and responsibilities. Whether your attorney drafts that agreement or you use a template, the document should consist of:
- Confidentiality and non-disclosure provisions for intellectual property and other proprietary information provided to the advisor
- Duties and responsibilities of the advisor
- Length of the agreement with the advisor
- The advisor’s compensation
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Remember this: While searching for advisors may be an exercise in risk versus rewards, finding the right ones can result in a team of dedicated allies with specific and unique skills who can help your startup fill gaps immediately and may also prove to be a resource for years to come.