Managing all the moving parts of a business can be daunting, but finding the right niche experts can help.
“It’s absolutely critical to have an advisory board … especially for a first-time founder.”
Tiffany Chan, cofounder of Atalan
Many startup founders seek out advisors or put together a group of them to form an advisory board in the early stages of founding a company. These people offer guidance on anything from raising money to putting together a marketing campaign and finding the right person to fill a role at the company.
“It’s absolutely critical to have an advisory board … especially for a first-time founder,” said Tiffany Chan, cofounder of healthtech startup Atalan. “Because [if] you don’t know how to run sales, you don’t know how to run marketing, if you run into HR issues, how do you deal with that?”
The right people, with a stake in your company’s success, can go a long way. That’s why it’s important to find a variety of experts who align with your mission and values, Chan said.
Keep reading to learn how to find potential advisors, how to approach them and what they can do for your company.
➡️ Jump to a section:
• What is an advisory board?
• What can an advisory board help startups with?
• Advisory board vs. board of directors: What’s the difference?
• How can I get started on building an advisory board?
• How should startups vet potential advisors?
• What do advisors look for when choosing a company to work with?
• How often should companies meet with their advisors?
• Are advisors compensated?
• How should a company break up with an advisor?
What is an advisory board?
A startup advisory board is an informal group of experts, typically three to seven people, who offer guidance and advice to founders.
“Most often, advisory board members are well-wishers, people who are well-known in the industry, experts in their field and/or early investors,” Sushma Rajagopalan, partner at Rittenhouse Ventures and cofounder of career platform 2nd Careers, told Technical.ly.
These boards will look different from company to company, depending on their niche needs. They can include experts in fundraising, marketing or a specific industry.
What can an advisory board help startups with?
Startup advisors offer expertise in areas founders may lack, helping with fundraising, talent recruitment, growth strategy and avoiding common pitfalls, Rajagopalan said. Overall, they can help a startup increase its reach and provide advice to help companies avoid mistakes.
Advisors meet with founders on a regular basis and help them approach challenges they’re facing. They may also join meetings with potential clients, partners and funders to help facilitate connections.
Rajagopalan, who advises multiple companies, helps the founders she works with develop their business and funding strategy, recruit new employees and other advisors and craft their pitch deck. She also assists with the process of securing deals, like a merger or acquisition.
Those are all benefits that Chan has seen while building her startup, too. When Atalan first started raising venture capital, her advisor walked her through the process step by step, including building a pitch deck and guidance on how to work with VCs.
Advisory board vs. board of directors: What’s the difference?
While both advisory boards and boards of directors provide guidance to a company, their roles, responsibilities and legal authority are very different.
An advisory board offers expertise and connections, while a board of directors is a governing body with legal responsibilities over the company’s operations and financial decisions.
A board of directors can appoint or remove people from leadership positions and make sure that the company meets its financial goals, for example. An advisory board could give advice on these topics, but not make the final decisions.
How can I get started on building an advisory board?
Finding advisors often comes down to networking and clearly stating the expertise you’re seeking, Chan said.
First, know your weaknesses. Early on, Chan made a list of all the areas she needed help with and started looking for potential advisors who could address each of those subjects — not a jack of all trades.
“It’s important to admit what’s missing and what are the gaps and what you’re looking for with the people around you and with more people around you than you’d be comfortable with,” Chan said.
To find those people, take advantage of programs and events for entrepreneurs.
Chan leveraged the connections she made while participating in an accelerator program by reaching out to some of the guest speakers. She’s also found advisors through mutual friends and her professional network.
Don’t be afraid to make some cold calls, too.
Rajagopalan often connects with founders through word of mouth, she said. People also reach out to her on LinkedIn, looking for help.
If you don’t have any of those connections yet, entrepreneurial support organizations (ESOs), like the Philadelphia Alliance for Capital Technology, can also facilitate connections between founders and advisors.
How should startups vet potential advisors?
The first few meetings with potential advisors should be treated like an interview, Chan said. You have to make sure they have the knowledge you’re looking for, that they align with your company’s vision and that they are able to make the time commitment.
Chan suggests getting to know their background and asking example questions to see what their problem-solving style is like.
Once you get to know each other a bit, it’s more natural to ask them if they want to become your advisor, Chan said. Depending on the stage of the company, you may not want them as an advisor right away. Instead, you can ask to work with them as a consultant to start.
Personalities matter, too. In general, it’s important to find people who believe in you and your company, because they are more likely to stick with you through hard times, Chan said.
What do advisors look for when choosing a company to work with?
Finding the right advisors is similar to searching for investors. Both sides of the partnership have to match each other’s energy.
“Chemistry with the founder and the team is very important to me,” Rajagopalan said. “If I am passionate about the startup and problem or the need it helps solve, then I am more enthusiastic.”
Advisors also look for founders who truly value their opinions and expertise, she said. Many advisors don’t want to be used just for their connections. Instead, they look to make a real difference in the company’s trajectory.
So while advisors like Rajagopalan may be willing to help any company that approaches them, they may only build long-term relationships if they feel they can make a big difference, she said.
How often should companies meet with their advisors?
Frequency depends on individual preferences and where a startup is in its journey. Generally, lean on them when you’re facing a specific challenge that you need tangible guidance on.
Some founders may choose to meet with their advisors all together, but Chan prefers to meet with hers individually on a consistent basis, she said. The frequency of these meetings depends on the topic and the stage of the company.
“I would have set topics that I bring to those meetings. I treat it almost like office hours,” she said. Founders bring the circumstances they’re currently facing, and ask for targeted advice on an as-needed basis.
Are advisors compensated?
If a third-party, like an ESO, helped you find your advisor, first check to see if they have rules on this. Some orgs only let the startups they work with take on free advisors, according to Rajagopalan.
Otherwise, advisors are typically compensated with equity in the company, especially for early-stage startups that don’t have a lot of extra cash, Chan said. But you want to be careful about who you’re giving equity to — and if it’s worth diluting your stake in the company.
“In later stages, you can mix in some cash in order to bring the equity down, especially when you start to realize how valuable your equity is,” she said.
Also, be sure to get this all down in writing. A startup advisory agreement is a legal document that outlines the advisor’s expertise and responsibilities and the compensation structure. When giving equity to an advisor, founders can include a cliff, which says that advisors can’t earn equity before a certain period of time passes. Some agreements also include a vesting schedule, which outlines how much equity an advisor can earn over time.
Some advisors will offer advisory services for free. Rajagopalan said she accepts compensation from larger, more established companies, but offers pro-bono services to unfunded or self-funded companies, especially ones that are led by women.
How should a company break up with an advisor?
Whether the company’s needs are changing or your visions don’t align, it’s important to be honest and respectful when ending a working relationship with an advisor, Chan said.
As the company grows and encounters new challenges, the types of advisors could shift, she said. Typically, she finds that she is looking for new advisors and meeting less frequently with existing ones every two years.
Creating a “term limit” — usually around the one- to two-year mark — on the advisory agreement can make it easier to break up, Rajagopalan said. Be sure to include a renewal clause, too.
“It’s all about expectation setting,” Rajagopalan said. “If your arrangement is informal and you have a good relationship with the advisor, be upfront and gracious. If expectations don’t align, say so.”
