Emerging Enterprise Center Blog - Commentary and Analysis For Entrepreneurs and Startups

The question that I most frequently get asked about advisory boards is:  “How much equity should I give to a member of my advisory board?”  The answer is very little, almost certainly less than the entrepreneur is thinking about.  Perhaps some numbers would be useful here.  How about .1% (that is a tenth of a percent) to perhaps .5% -- depending upon the value to be provided.  By the way there should be vesting involved.  The vesting period should be long enough to cover the period in which you expect to be getting value from the advisor.

Having now answered (to the extent I am comfortable doing so in the absence of any specific knowledge or facts of any particular case) the only question any client ever asks about advisory boards, I hasten to note that there are a lot of other – far far better – questions that could be asked about advisory boards.  Here are a couple:  What value can I reasonably expect from a member of my advisory board?  How do I get that value?  Why do I need an advisory board at all?  How do I find good advisors?

I don’t have any objective or quantifiable information around whether and how much value start-ups derive from their advisory boards.  My gut sense, based only on my law practice, is not much.  Mostly, what start-ups get is the opportunity to name a few luminaries on a slide towards the back of their deck.  The second thing they probably get is some introductions, probably to investors. 

I am sure there are some companies and entrepreneurs that have benefited greatly from advisory boards, but I have to believe this is a small number.  Below are a couple of links to blog posts on the subject of advisory boards.  The one from venture hacks seems to me to be particularly good in that it covers a lot more than just compensation, although it also covers comp.

Venture Hacks “Everything you ever wanted to know about advisors”

Ask the VC “Are Advisory Boards Helpful?”

Ask the VC “Advisory Board Compensation”

This recent article titled: "Entrepreneurs need to know when to let go" by Michael Skapinker  of the Financial Times raises a good point and got me thinking of an analogous example in the very early stages of a start-up. Letting go does not start with selling the company. It needs to start much earlier than that for technology teams looking for venture funding for their idea.

I have often heard senior advisors refer to the decision to raise venture funding as going down a path  where the final destination invariably means losing control of your company. Determining if you want to walk down this path is a question often not given enough serious thought by founders.  Think of it as an identity crisis of sorts - one way to determine if the founders are ready to take the VC route is for them to ask themselves: Am I ready to make distinction between myself and the start-up? If the answer is "NO - there is no distinction", then the path from start- up through venture funding to hopefully an exit will be at best more painful and angst ridden than normal and at worse will be a disaster of sorts. 

However, if you think of your company as its own entity (albeit one where you have significant input and credit for it's existence) then it helps to think of going down the venture capital route as sending your kid off to college. He/she is going to grow up to be their own person and though you will always have some influence in their lives, increasingly your sphere of influence will diminish and be replaced by that of their peers, partners, teachers etc..

Letting go also helps entrepreneurs do what they do best -find new problems to solve and start new companies!

Copyright: Micahel Valdez, iStock Photo

- Posted using BlogPress from my IPad. 

A quick shout out to my co-blogger David Broadwin for his recent guest post on Sim Simeonov's (of FastIgnite) blog High Contrast, on the subject of founder agreements and the importance of including vesting. 

 In other words....how not to give away too much of your company to slackers and flakers who don't deserve it.

Every aspiring start-up founder and founding team should give this a quick read.   Click here for the full post.

David Wessel’s recent article in the Journal, “A Prozac Economy has its Costs,” asks: If we were able to invent the economic equivalent of Prozac – something that would take away the high-highs and the low-lows of our current economy (think the tech bubble of the late 90’s and the current recession) – would we elect for a prescription? Would we, given the choice between a dynamic, volatile economy with painful depressive phases, and a more mellow economy with fewer crises but a slower growth rate over the long term than its manic doppelganger, settle for a calmer existence? Though my understanding of economics is limited to my college-level macro and micro courses, from an entrepreneur’s and VC’s point of view, I think my answer would be: give me manic any day.

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The nature of the law business is that pretty much each attorney is an individual contributor. You do the work clients need when they need it. If clients have conflicting needs, it is mostly up to you to prioritize and manage your own way through it. Sometimes you work on large matters, IPOs (when there used to be such things) and mergers being examples, and you have to coordinate with a group. But, generally, you are the master of your day, your week, your month and your year. When we opened the EEC things changed a lot. We changed the model to some extent and now there are a lot of projects that have to be done by many people over many months (even years). Just saying, “the client needs it ASAP” doesn’t help. When, exactly, is ASAP?

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