When a startup receives financing it will need to setup a Board of Directors. The Board probably existed beforehand, but was made up only of the founders. Once funding takes place, the angels or VCs will want a seat at the table. There’s no surprise there.
But there’s another kind of board that’s equally important. In some ways it’s more important (although it doesn’t have any control over the business), and that’s the Board of Advisors.
What many first-time CEOs might not realize is that they may need to setup an Advisory Board as a condition of receiving financing. Venture capital firms like to see CEOs with strong support (beyond the Board of Directors) and that’s what the Advisory Board is there to do. It’s unlikely you’ll have an Advisory Board before you get funded, but it will very likely come up after.
Mark Macleod spells it out beautifully in his post on Advisory Boards.
Forming the Advisory Board might be a condition of financing, or perhaps a deliverable for receiving future financing/tranches from VCs, but as Mark points out, the Advisory Board isn’t there on behalf of your investors:
“Be selfish. Advisory boards are not for the company, they are for you. As leader of your company, the advisors are there to provide you with a personal, confidential, trusted sounding board.”
I hadn’t really thought of it that way before, but there’s a certain comfort in thinking about having a team of people you can lean on for advice, help, questions, support, etc.
Whether the Advisory Board is something your investors (or Board of Directors) demand or not, you should set one up anyway. Why wouldn’t you? As people have said to me before, “Being CEO is a lonely job…” so having others (far more experienced than yourself) to rely on is very valuable.
Pick Advisers Carefully
Something I’ve noticed with Advisory Boards is that they’re often stockpiled with “big names” – celebrities in their respective industries. But I suspect that’s often done for name brand and recognition. First-time startup CEOs in particular want (and to a certain degree need) validation in their space – and so they lean on celebrity advisory members as a means of getting that. I understand the reasoning. I see the attraction. But I’m not convinced this is a great approach. At the end of the day, you (as the CEO) and your company, will win or lose based on your own merits and those of your company (the team, your product/service, etc.) not the name recognition of your celebrity advisers. If the celebrity adviser can dedicate time and energy to you, then you get the best of both worlds, but otherwise, be careful.
Mark talks about a simple structure for an Advisory Board, and the first one on his list is (in my mind) the most important:
“A consligliere: This is your trusted personal adviser. Once your company is big enough to have a full time CFO this person fills much of this role. Until then get someone like a CFO on your advisory board who can provide counsel on key legal, structural, strategic and financial issues.”
I also agree with Mark’s advice to keep the advisory small at the beginning. You can always add people later on, as you discover more needs that you have.
A Few Quick Tips on Advisory Boards
A few additional thoughts:
- Compensation. You will most likely have to compensate board members. This is typically done with a small piece of equity. And if you hold advisory board meetings you will most likely have to pay for travel expenses too.
- Expectations. You need to set expectations upfront. What do you want from your advisers? Very often, you’ll want different things from each one. Make sure you’re clear about expectations and goals from the get-go. And I know this is easier said than done — you’re the first-time CEO and your advisers are veterans, experts and probably a lot wealthier than you are. Even if they’re not “celebrity advisers” you’re gunning for some big names, people you look up to and admire. It’s hard to tell someone like that, “I want X and Y out of you. So deliver!” But, you’re the boss. And you’ll need to make sure you have a strong enough working relationship with your advisers to be able to get results from them.
- Availability. It shouldn’t make a huge difference whether you try and organize all the advisers to meet at given times or interact individually with them when need be. I would prefer not to schedule regular meetings because of the difficulty in coordinating that; and ideally, your advisers should be available much more often than once every couple of months for a meeting.