What can you help me do better, right now?

In last week’s post, I argued that startups should (early on) focus their time and energy on bringing on the right angels vs decorated individuals as advisors.

I got a bunch of replies stating that there is a case to be made for advisors too. Which I agree with in certain instances.

Thus, here’s my high level thinking on the when and how of bringing on advisors at the start of your startup journey:

In my last post, I argued that most potential advisors can afford to put in (even a small) angel check into your (pre-) seed round. This aligns incentives much better, increases the likelihood of them putting in hard work on your behalf and is a much stronger signal towards the (VC and hiring) market.

However, sometimes individuals cannot put in a check. Everyone’s personal situation is different after all - whether it be from a liquidity, employment agreement, etc perspective.

If you have a high level of conviction that this individual’s involvement in your startup is of high value (even if they cannot invest), then make sure to ask the following question:

“What can they help me do faster or better in the next 6 months?”

You need to have a clear and specific answer to this question plus a tangible way of measuring the impact they have over the next six months. Otherwise, the individual likely isn't a good fit for an advisory role at your startup at this point in time, no matter how decorated their resume is.

As argued in last week’s post, a lot can change in a few months in early stage startup land (smaller and larger pivots happen often). Thus, bringing on advisors that may eventually become relevant means chances are high they’ll never actually become relevant. Which is a waste of your time and company equity.

If you do have a clear answer to the question above, then do the following:

• Tie their comp to the measurable and tangible value add they’re supposed to bring. For example, an advisor who is supposed to get you more sales leads could have up to 100% of their comp be performance-based. For them, structure it similar to how you would structure a sales incentive plan. For other type of advisors, come up with a different comp structure.
• Stay between 0.1% and 0.5% equity comp, depending on their impact. Going up to 1.0% is only warranted in outlier cases. Use the value add of a full time employee (minus a discount for salary) as a benchmark for what their comp should be, based on the impact they should have.
• Tie them to a (minimum) 2-year vesting schedule with a (minimum) 6-month cliff
• When negotiating all of the above, keep in mind that the best results happen when incentives between the best and most motivated people are aligned. That should be your #1 goal.

For advisory board agreement templates and additional guidelines, take a look at:

• The FAST (Founder / Advisor Standard Template) agreement by Founder Institute or
• This advisor agreement by Founder Space

And of course don’t forget to consult with your legal counsel before signing anything!

Last but not least, a small side note re advisors when pitching:

Team pages of pre-seed / seed pitches are here to showcase the team and their (domain) expertise. However, more often than not, we see advisors take up a lot of “real estate” on team pages. With it, there’s little room left to showcase the founders / key team members.

Rather, as a rule of thumb, if you have advisors (and angels) involved - “real estate” on the team page should be roughly in line with ownership in your business.

-------

👋 - Looking For Pre-Seed Funding?

At focal, we lead pre-seed rounds backing software / platform / infrastructure builders across the 🇺🇸/ 🇨🇦 reinventing how industries operate and business is done.