Category: Other Start-up Issues

Advisory Boards – Getting Off to a Good Start

In my last blog I discussed the pros and cons of having an advisory board for your company. If you have decided to set up an advisory board, you now need to consider what’s involved to establish your board and get it off to a good start – read on!

Before pursuing specific individuals, the company should prepare a written profile of preferred candidates depending on the purpose of the board. If the board will primarily serve as a sounding board and source of input regarding marketing strategies, the profile will focus on their marketing expertise. If the board will concentrate on sales, the criteria should focus on a combination of expertise and useful industry-specific contacts. If funding strategy will be a key purpose of the board, experience in funding transactions and contacts with potential funding sources will likely be key. Of course, advisory boards often have multiple purposes. In that case the company will need to decide on its preferred mix of candidates with different areas of expertise.

Once the company has prepared a profile of preferred candidates, it’s time to look for potential advisors. The first and best source comes from the direct contacts of the company’s founders. Those contacts may be strong candidates for the advisory board, or those contacts may be able to draw on their personal network to suggest other individuals. If existing contacts don’t yield any candidates or referrals to candidates, then reviewing industry publications, LinkedIn profiles, and attending industry trade shows can sometimes be useful ways to locate potential advisors.

What is the preferred board size? There is no right number, but for the early stage company an advisory board of three or four members is usually ideal. Somewhat larger than that also often works well, but typically an advisory board of more than seven members ends up being unwieldy and not productive.

The company should always take its time in evaluating potential board candidates and bringing them on board. The employment maxim of “slow to hire, quick to fire” is often applicable here as well. Operating the company for an extended period without an advisory board is not ideal, but having no board is better than rushing to assemble a board, devoting time to getting the board up and running, and then realizing that some or all of the board members are not a good fit.

After the company has decided on the size of its board and found suitable candidates, two immediate items must be addressed. First, the company must decide how to compensate its advisory board. As is true with most aspects of advisory boards, there is no one-size-fits-all answer. However, restricted stock representing one or two percent of the company with vesting over four years is typically best. The exact percentage ownership number will depend on several factors, including the industry clout and expertise of the advisor and the size of the board; a smaller board enables the company to be more generous to each board member without causing excess dilution to the founders.

The second issue is the strong need for a written agreement with each advisor. The exact terms will vary, but key benefits of having a written agreement include: 1) establishing clear expectations as to advisor involvement and compensation; 2) protecting the company’s confidential information; and 3) establishing that any intellectual property contributed or developed by the advisor as part of the advisory role is owned by the company.

Maybe after considering the time and effort involved in successfully establishing an advisory board, you’ve decided not to pursue a board after all. If so, better not to ever have a board than spend a lot of time on a board that ends up being unproductive! But if you are proceeding with a board, my next blog will consider additional factors that will help ensure that your board is successful.

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Advisory Board – Should I Have One?
Care and Feeding of an Advisory Board