Why should your climate/cleantech start-up or scale-up have an advisory board before you start your fundraising campaign? How to create one? Greenbackers Managing Partner, Robert Hokin, shares thoughts on how and why this should matter to your executive team.
I was recently asked by an enterprising fintech start up to join their advisory board. While I am considering this, it got me to thinking about best practices. So here are some thoughts in no particular order.
Today, start-ups have an eye-watering number of resources at their disposal, when it comes to support for growing their business.
There are tech incubators/accelerators in pretty much every major city and even small towns. These “accelerators” claim to offer support for entrepreneurial ambition and in many instances, they go on to take these ambitious start-ups to the so-called “next level”. However, this is not necessarily a free ride, accelerators often can take a big chunk of the company’s equity in this trading of skills and know-how.
Is there another route available? How can start-up founder(s) build this value themselves without a big dilution up front? Of course there is and I am talking about an “Advisory Board”.
Advisory Board members can often act as mentors to the founder and their team as they build their business. This approach is something I have seen first-hand in many companies of my own and in those where I participate as an advisor myself.
With some big names in the tech world quoting the help, guidance and mentoring they received as being a major contributor in their success (Mark Zuckerberg often cites Steve Jobs’ mentorship as critical to the social media platform’s success, as just one example), there really is something to this.
I googled an American report from Endeavor Insight that 33 percent of New York based tech entrepreneurs who were mentored by other top entrepreneurs went on to run their own successful companies. As a comparison, the alternative (ie. entrepreneurs with no mentor/advisor) was a much, much lower. Without doing huge research on this, I reckon this holds true in the EU (and former EU, I am Glasgow based) as well.
Whereas a Board consists of shareholder members who have the authority to make key decisions, an advisory board is not a formal entity. In fact, they don’t actually work for the company. This is not a negative as an advisory board can be central to helping you build your business, attract investment and indeed, be successful.
SO HOW TO DO IT?
There is no downloadable template that I’ve ever seen for putting together an advisory board. But if you take a common-sense approach as you would to any hire, the process need not be too painful. Keep some things in mind:
1. Size matters: Not too big, not too small. Be selective. An advisory board of five (or fewer) members who have the skills and experience you want should be plenty. And don’t accept all the advice you receive as gospel. Bear in mind that some gems of advice will surface and you will, in most cases, know which ones are going to work or not.
2. Compensation: Before making an approach to the potential advisory board members, determine how much you are willing to give away in equity. Advisors typically receive anywhere from 0.25 percent to 2 percent equity, although for a perfect advisor, you may want to consider a higher number.
A good piece of advice I once heard is “Never hire anyone as an advisor if they want to be hired as advisors”. The best ones, and the ones that usually perform, tend to be those who just want to help. If you see value, then employ them in the role, officially in an executive or non-executive capacity.
3. Meeting Frequency: When discussing how much time you expect an advisory board member to invest, make absolutely clear that this is not a full or part time role. Their time commitment should be nowhere near weekly or even monthly and can often be as infrequent as quarterly meetings. You may also want to pitch these meetings as great opportunities for potential advisors to work with other influential members of your board. In my personal opinion, every other month is optimal.
4. Role Spec: you would create this for any job position, this should be no different. Include also the areas of contribution, expertise and value-add that you would expect from the person. The more specific you are here, the better the outcome will be.
If you are not sure if you are ready for your own advisory board, consider joining one yourself. It’s a great way to learn, make connections and apply your own expertise to a company’s growth.
If you have peers with expertise in your company’s less strong areas, consider asking them to help you in your search. Always tap into your personal network and seek referrals when possible. It’s definitely worth the effort.
And the optics of your business to investors will strengthen as a result. At Greenbackers, we always score ventures we are considering higher who do have Advisory Boards than ones who don’t. So do many funds. It’s a de-risk factor for a given fund’s investment criteria.