How To Structure an Effective Startup Advisory Board
With these tips for structuring a startup advisory board, you can boost credibility, get unbiased feedback, and propel your business past its challenges toward success.
How To Structure an Effective Startup Advisory Board
With these tips for structuring a startup advisory board, you can boost credibility, get unbiased feedback, and propel your business past its challenges toward success.
Does your startup need an advisory board? While it’s not a requirement, structuring an advisory board for your startup can lead to several benefits.
For one, this board can offer expert advice, help you stand out to investors, and improve your business reputation—especially for first-time founders.
Not only that, but a startup advisory board can also positively influence business operations. According to a study by the Business Development Bank of Canada, businesses with advisory boards had 24% higher sales and 18% more productivity compared to those without.
With all of these perks in mind, you’re probably ready to dive in and start building out your board. Follow this guide to structuring a startup advisory board to start taking advantage of these benefits.
What is a startup advisory board?
A startup advisory board is a group of experienced individuals, such as industry professionals, financial professionals, former business leaders, and other experts, who offer guidance to startups.
An advisory board is not the same as a board of directors. The members don’t govern the startup, and their advice isn’t binding. Instead, they can offer a fresh perspective based on their own experiences to help founders navigate challenges such as pitching to investors, applying for grants and loans, or expanding the business to new markets.
Benefits of a startup advisory board
As a founder, it’s easy to get caught up in a wide range of business decisions that need to be made all at once. But you don’t want to miss out on outside opinions to help uncloud your judgment. That’s where an advisory board can come into play.
With expert advice and guidance, advisory board members will help you get through startup challenges and grow into a successful company.
Here are the many benefits of establishing a startup advisory board:
Business feedback: Members can offer feedback on business operations, budgets, financial plans, and other goals and procedures as requested.
Expert advice: Board members are experts in their fields, so they can offer strong, experience-backed advice to guide the startup.
Professional assistance: The board can help with reviewing pitches, seeking out and advising on loan and grant applications, advising on business plans, and more.
Networking: Need an introduction to an investor? Looking to hire your first employees? Advisors can help with warm introductions to potential investors, new hires, customers, vendors, and other essential connections.
Credibility: Startups have little data to prove themselves worth investing in or purchasing from. However, an advisory board gives the startup expert backing to show investors and customers that they have industry professionals guiding them to success.
Mentors vs. advisors
An advisory board member gives guidance and shares their expertise without requiring the startup to follow any advice. This role sounds a lot like a mentor, but there are some differences.
For one, a mentor is an unpaid role without specified time commitments. It’s an ongoing relationship without a contract. By contrast, advisors go through an interview process, sign a contract, and often have time requirements, such as weekly or monthly meetings. The startup may also pay advisors in the form of equity.
However, when founders start seeking potential advisory board members, mentors are often considered for these roles. It’s not uncommon for a mentor to later become a member of the advisory board.
How to structure a startup advisory board
When you’re ready to start structuring your startup advisory board, follow these steps to find potential members, conduct screenings, establish expectations, and reiterate as startup needs change.
Prepare startup documents
Advisors will need to know more about your startup and your goals before moving forward to the screening process. So, before you start reaching out to advisors and scheduling interviews, prepare your important documents and data to show potential advisory board members.
You should have information about your mission and vision, upcoming milestones you hope to reach, any funding you’ve received, funding rounds you expect to seek out, KPIs your business is currently meeting, and the business plan ready to show potential advisory board members.
Reach out to your network
Start reaching out to your network, including colleagues, fellow startup founders, mentors, former co-workers, and others who can add to the expert panel guiding your company to success.
After reaching out to your existing network, you can also engage with potential members on social media and attend networking and industry events to meet experts who could become advisory board members.
Consider the number of members
The number of members is a major factor in structuring a startup advisory board. If there are too few advisors, you could lack diverse opinions and experiences to overcome obstacles properly. Too many, and you can get weighed down by differing opinions.
A startup advisory board works best with about five to seven members, ideally with each member having different professional experiences, such as one member with financial expertise, one with leadership skills, an expert in regulatory requirements, one with media and PR connections, a sales pro, and so on.
Select members based on industry expertise
When choosing board members, keep their industry experience in mind. Founders have expertise in the product or service they choose to sell, but they may not be pros at marketing, public outreach, or financial services.
Just as when you build a founding team for the startup, you should choose advisory members with varying experiences and skills for a more diverse board with multiple perspectives. Consider choosing members who have strengths where you have weaknesses.
Conduct cold outreach
An advisory board is great for helping with warm introductions, but how do you reach out to potential members before you’ve officially established the board? It’s time to brush up on those cold email skills and reach out to people that you’re interested in having join the board. If you’ve researched and found strong potential candidates, don’t be afraid to reach out to ask if they’d be interested in participating in your advisory board.
Screen potential advisors
Your advisory board will be guiding you through some of the biggest hurdles and milestones of the business, so it’s important to find highly qualified individuals that you can trust to give you the best advice. Like finding a co-founder or hiring a new employee, you’ll want to screen and interview potential advisors to make sure they are the right fit for your company.
In the interview, confirm that the members have the skills needed to advise your business. Check that they have no conflicts of interest (such as investments in competitors) and that their availability works with your schedule. While advisors aren’t full-time employees, you still want to be able to reach them as needed.
Set up compensation expectations
So, how much should startups pay advisory board members? The total varies, but compensation is typically a small amount of equity per member paid with a vesting schedule. That means board members may need to be involved with the startup for a period outlined in the contract before accessing their financial benefits.
According to AngelList, advisory board shares typically total around 5% for the entire board or around 0.5% to 1% per member.
Carta reported that the median advisory share is about 0.21% per board member.
The exact compensation you offer will depend on how much equity you’re willing to offer up to advisors, your startup’s valuation, and how much effort and time you’re expecting from advisors. Work with a lawyer and a financial expert to determine compensation conditions that meet your needs.
Prepare a contract
After screening members, you’ll have a clearer idea of who you’d like to bring on board. Despite advisory board members not being employees, they still need to sign contracts to protect your startup and each member. The contract should include:
Non-disclosure agreement: An NDA protects your intellectual property and confidential company information.
Compensation information: Outline compensation, including a vesting schedule if you have one, so advisor members have contract protections for the financial incentives you offered them.
Duties: Clearly define all duties expected of the advisor. These may include regular one-on-one meetings, advising on specific business decisions, giving feedback on pitch decks or loan applications, and more.
Time commitment: The contract should include the amount of time the member should dedicate to the startup each week or month.
Contract length: The contract can include details about the member's tenure on the board and language about re-evaluations and transitioning board members out of the company.
Be sure to consult a legal expert when structuring an advisory board member contract.
Onboard advisors
The advisors have signed their contracts; now, it’s time to start seeking their expertise. When scheduling board meetings or one-on-one meetings, follow the time commitments and duties outlined in the contract.
You can set up a training process for new advisors, similar to how you would train and onboard a new hire. Be sure to share access to the company’s accounts and procedures, such as by making each member a company email address, setting up accounts on any software your business uses, and giving them access to your office spaces.
Evaluate and reiterate as needed
Like employees, advisors may not stay with the startup forever or be the right fit. Evaluate the board every six to 12 months. Are members meeting the time requirements outlined in the contract? How is communication? Are all the skillsets available still useful to the startup, or have your needs changed?
If a board member is no longer the right fit for the startup, openly communicate with that member and establish a transitioning plan to bring on a new member. Follow any outstanding equity obligations to the former member based on the contract.
Strengthen your startup with an advisory board
An advisory board isn’t a requirement for startups. Still, it could help young companies—especially those run by first-time founders—overcome common startup challenges, fortify financial applications and fundraising pitch decks, improve business plans, and even boost metrics like sales and productivity.
The magic of an advisory board is that this group of people includes many of the skills and past experiences that the founding team lacks, making for a more complete, comprehensive team to steer a startup toward success.
You might also like these...
A Guide to Venture Capital for Startups
New companies need funding sources to get their products and services on the market. Find out more about venture capital for startups with this guide.
When raising funds for a startup, you need to understand how venture capital firms do due diligence. Learn what steps VC firms take when considering investments.
