From Seed to speed: Leveraging advisors to accelerate startup growth

From Seed to speed: Leveraging advisors to accelerate startup growth

Social media is full of tips and tricks that promise to help founders turn ideas into innovation at speed. Unfortunately, a lot of this “advice” comes from self-appointed “experts” with little experience of the realities of building a successful start-up or scale-up at speed.

That’s why many businesses choose to work with advisors.

Experienced, well-connected advisors provide insight and support in specific business areas. They also add credibility and access to their network.

An Advisory Board Centre report found that 74% of firms appointing advisory boards are doing so to enable growth¹, and there are many well-known examples. For instance, Sean Parker – the co-founder of Facebook – was an advisor to Spotify, while Airbnb’s early advisors included LinkedIn co-founder Reid Hoffman.

Of course, access to advisors’ insight and influence comes at a price. Here’s how to spot the right advisor, and what to expect as you start to work together.

There’s no such thing as an armchair advisor

Often, the difference between interesting opinion and high-impact advice is experience.

Active, applicable experience is invaluable – and an effective way to filter potential advisors. Ideally, startup advisors understand your space – either as investors, industry leaders, or subject matter experts. It is also an advantage if they have built a similar company to your own. That way, besides offering unique perspectives, they can also highlight common pitfalls to avoid and offer solutions to help you navigate the inevitable uncertainty ahead.

Found somebody who you think fits the bill? The next question is all about chemistry.

Ensuring a good fit

Advisors are an extension of your team, so it is important that they match your startup’s culture and vision.

You need to find people you can have a trusted relationship with. While some advisors might have expertise that looks good on paper, you’ll also need to consider the communication and working styles of your team. Spend time with potential advisors and do the due diligence to ensure your interests are aligned.

This will give you first-hand insight into their problem solving and strategic approach. Remember to take references and check that there is no conflict of interest (i.e. that they are not already advising a similar firm in your industry).

Ready to get into a committed relationship? Time to dot the I’s and cross the T’s.

Commit to a detailed agreement

Advisory agreements protect both parties and clarify expectations on either side. They typically outline:

• Non-disclosure and confidentiality provisions: Sections that legally protect you and your company when it comes to sensitive information such as intellectual properties that advisors have access to.
• Roles and responsibilities: Specific areas of focus, time commitments and benchmarks for success. Look at both the short- and long-term needs of your business and identify gaps you’d like to fill. Set clear goals so you can hold advisors accountable.
• Duration of the agreement: This depends on the complexity of the relationship and services provided. Some contracts last till a specific task or project is completed, while others might be longer term.
• Compensation: Structure compensation such that you get value and yet retain the flexibility to replace advisors without losing equity, particularly in the initial stage.

The compensation conundrum: cash, equity or both?

Advisor compensation varies based on the maturity of your startup and the nature of your relationship; advisors may also prefer equity or direct payment for their time. Some firms also provide a mixture of equity and a retainer.

For cash-strapped startups, rewarding advisors with shares can be an attractive way to access quality guidance while conserving limited financial resources.

But tread carefully.

If you do decide to grant equity, take factors like the advisor’s experience, time commitment and the expected value of their contributions into consideration.

Remember that you will also need different advice as your business evolves. It’s not uncommon to see advisors be impactful in the first few years, until the startup outgrows its initial needs. Vesting, the process of earning an asset over time, is one way to deal with this, because it means that advisors can’t receive equity until they’ve earned the right to, or delivered the agreed services.

Cliff vesting is also popular. Here, equity is only awarded to the advisor once the business reaches a specific milestone (typically time-based, milestone-based or a combination of both).

Think of it like a probation period.

For example, a two-year vesting schedule with a six-month cliff means that if an advisor leaves before the first half of the year, the company gets to keep the equity.

Advisors are an integral part of the startup ecosystem. The right ones can help transform your business and mean the difference between failure or success. However, their insight comes at a price.

Be mindful of equity dilution and focus on building a relationship that helps reach specific goals.