by Evangelos Simoudis, Ph.D., Senior Managing Director at Trident Capital
Board advisors can be an essential asset for any budding startup; however, there are important criteria to consider as you select candidates for this crucial role.
1. Roles and Responsibilities
Advisors have a less “official” position with a startup. They can be easily changed, and the number of advisors each startup can appoint is not limited in any way. A startup can recruit several types of advisors, each playing a different role. There are advisors who are recruited to provide the startup with technology guidance or product or solution input, and advisors who are recruited to provide the startup with market strategy or introductions to customers in a particular market segment of interest. Before you set off to recruit an advisor, determine what role you want this individual to play in your startup.
2. Number of Advisors
Next you need to determine how many advisors of each type you need to recruit in order to achieve your goal, and how many you can actually accommodate based on your, and your team’s, bandwidth. An advisor is typically expected to spend just a few hours per year with a startup (typically 20-40 hours per year). This suits large company executives who are typically recruited for such roles and can only devote limited time to advising startups. Good advisors are in high demand. By the time you start recruiting a particular candidate, he or she may already be a member of other startup advisory boards. Therefore, during the recruitment process you will need to determine how much time the advisor is able and willing to offer to your company and whether this time would be sufficient for what you are trying to achieve with the particular advisor. In such cases you will need to determine if there are conflicts between your startup and the companies the executive is already advising.
Like any other executive, advisors may periodically change positions and employers. As a result of such moves, they may not be able to continue advising your company. In order to deal with the advisor’s time limitations and to benefit from different points of view, it is important to recruit several advisors of each type.
4. Potential Conflicts
When selecting multiple advisors, it’s important to ensure that there aren’t any conflicts of interest. For example, you will not be able to recruit an executive from Coke as an advisor and another from Pepsi, or an executive from SAP and another from Oracle. To address some of these issues, startups oftentimes recruit retired executives or individuals who are no longer in active executive roles as advisors. The appropriateness of this approach depends on the role the advisor is expected to play. For example, a retired advisor may not have the most up-to-date contacts and may not be able to provide the startup with the right customer introductions.
Finally, you will need to determine if each advisor’s location will present any problems to the interactions you envision. For example, if your startup is located in San Francisco and the advisor you are trying to recruit is based in New York, then you will need to make sure that your advising needs can be satisfied mostly through conference calls and through periodic travel.
A company can have more than one advisory board. Early stage technology-driven startups initially recruit technical advisors, followed by advisors from companies that are customers or can be customers of their solution. While such startups typically form a single advisory board, in most cases the company’s executives meet with each advisor individually. As the startup grows and more advisors of each type are recruited, one-on-one meetings are supplemented with group meetings where all advisors participate. The startup’s CEO typically leads the advisory board. In later stage companies, the advisory board often breaks up into function-specific advisory boards. Company executives lead these function-specific boards. For instance, the VP Products would lead the customer advisory board, the CTO would lead the technical advisory board, and so forth. Not every private company has more than one advisory board, but don’t think that you need to “fit” all the advisors into a single group.
Advisors may be willing to sign NDAs with the company they are advising, though many advisors don’t. Finally, startups compensate advisors through options.
The key to selecting advisors for your startup is making an informed decision. By doing your research while keeping these criteria in mind, you’ll have the best chance at selecting the right advisors for your startup.
Evangelos Simoudis, Ph.D. is a Senior Managing Director at Trident Capital, where he focuses on investments in Internet and software businesses. Find him at blog.tridentcap.com and on Twitter: @esimoudis.