SmartHippo

How to set up an advisory board for your startup

SmartHippo advisory board meeting (photo by Bill Rice)

We have an awesome advisory board at SmartHippo and I often get asked how we set it up and how we leverage the people on it. If you run a startup, particularly if you’re early stage, a good advisory board can be one of the best investments you can make.

Here are some tips on how to make it work:

Who to include on your advisory board

  • Thought leaders or other well respected people in your industry.
  • Door openers who can introduce you to customers, channel partners or investors.
  • Superstars who you wish you could have on your management team but can’t afford.
  • Strive for a balance of people with different areas of expertise who may not all think the same way.

Who not to include on an advisory board

  • Token individuals who are there just in name but who aren’t actually engaged in your business. You don’t want someone conducting diligence on you or your company to call up an advisor only to find out they don’t remember who you are.
  • Angel or institutional investors who have not invested in your startup. This doesn’t send a good signal, since if they really believed in you they would have invested.

Receruiting and compensating your advisory board

Most people will be flattered to know that you see them as an authority in your industry and will be open to learning more about your business and providing you with feedback. At this point, the easiest way to get people to join your advisory board is just to ask.

If you’re early stage, you’ll typically be compensating your advisory board in stock options. 1/4 to 1/2 point of equity, vested over four years is a good guideline.

Getting the most out of your advisory board

Remember that your advisors are busy full time with other things. Respect the value of their time and be as specific as you can with requests you send their way. (i.e. “I’d like your feedback on our go to market plan” or “Are you able to introduce us to a C-level executive at company X.”)

For many advisors, aside from the longer term payoff from stock options, meeting and learning from other smart people can be a big motivator. At SmartHippo we also make it a point to organize an annual advisory board meeting where we fly all of our advisors into town and combine a day of updates and strategy meetings with social events. Make it fun!

Does your startup have an advisory board or are you thinking of setting one up? Share your experience in the comments below.

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  • http://startupcfo.ca startupcfo

    Hey George, here's my take on advisory boards. I agree that, done right, they are low cost, high impact and very worthwhile http://www.startupcfo.ca/?p=84

  • georgefavvas

    Thanks for the link, Mark. Not sure how I missed that but great points in your post as well.

  • http://www.mattbartus.com/ Matt Bartus

    George, thanks for the article. Here is a quick post on option grants for advisory board members: http://www.mattbartus.com/2010/03/advisor-optio

  • http://www.favvas.com/ George Favvas

    Good post, Matt; thanks for sharing. In retrospect, I agree that 2 year vesting makes more sense than a longer time period given how quickly things can change in a startup.

  • http://twitter.com/muthuka muthuka

    This is great. I was looking for this when we had a hard time to understand how much to offer in stocks at our early stage. We got 2% as the response from couple of folks. Is that reasonable?

  • Dan Munro

    Kind of depends on the stage of your evolution – but the industry norm is lower (like 0.25% or 0.50%). In the offer letter – I use the following (or some variation): “We review and reward contributions often.” The initial (token) equity is basically free – as a chance to work together. It's real easy to add to that amount for those who do contribute over the course of 6mos … and by taking this approach … you're correctly setting the stage for a 2-way partnership (IMHO).

  • http://www.favvas.com/ George Favvas

    2% seems quite high. If you have 5 advisors, that's 10% of your equity. Of course it all depends on the value the advisor adds. If this is a super star advisor who will be actively involved and whose reputation and efforts will bring your company to the next level, you may decide it's worth it.

  • Steven

    Typical advisory vesting is 2 years although negotiable. The 4 year rule applies more to founders

  • Muthu

    Looks like I made enough of mistakes and still time to adjust it. Thanks all.

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  • nataliehodge

    Thanks great advice! We have three great advisors and are looking to add a fourth who has a strong finance background, it makes sense to find someone with strong connections in healthcare finance, angels in particular. How can we get a finance advisor without asking th for money, and not reflecting poorly on the business because he is not invested? A catch 22 perhaps?

  • http://www.favvas.com/ George Favvas

    “If you want money, ask for advice. If you want advice, ask for money.”

    You could open a dialog by asking for advice and if the person is interested and has the resources, they may ask if they can invest, if even a small amount.

    Failing that, another option is to get them onboard as an advisor but not announce it publicly. In that way you'd still benefit from their knowledge and experience.

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  • Ashwin

    You made a typo - Receruiting and compensating your advisory board

  • Tony

    How much effort (hours) expected from advisor per week/month based on 0.25/0.5 equity?