Courting Advisors: A Founder’s Guide
This article was originally posted on StartupNorth. It was co-written by Boris Mann and Danny Robinson. It provides background on finding and compensating official advisors.
One of the great things about the tech industry is the generousity of people, who have ‘been there and done that’, to share their time with entrepreneurs. The energy of sharing, connecting, approachability and equality makes startups so attractive.
Lately, there is an increased demand for attention and engagement of advisors and mentors. And, in speaking with other advisors in the community, there is a feeling that some entrepreneurs are exploiting the system and taking advantage of the good will of others. It’s not necessarily intentional or deliberate. Entrepreneurs are trying to get meaningful advice to maximize the outcomes of their companies for the least cost.
There are increasing demands on advisors, and it is partially the role of the advisor to manage their workload and volunteer time. But it is also the responsibility of entrepreneurs to understand the circumstances of when to ask someone to join your advisory board and when not to.
A Quick Guide to Recruiting Advisors
When a founder feels like he/she could use advice from someone experienced in a certain area. Whether it’s getting go to market strategy, product design, fund raising, corporate structure, making introductions, or simply adding credibility to the company (though don’t overplay the advisory board when raising capital — see Mark Suster’s post). Getting an advisor to help you out with skills that you don’t have inside the company is a great way to move forward.
- One of your early “asks” to anyone you meet is to help introduce you to a potential advisor
- 1–3 official advisors is a good number to aim for initially
When we say “official”, we mean people that have signed an advisory agreement and are compensated with equity. You can and will have many more people around you helping out and giving feedback and advice.
Finding an Advisor
It is the responsibility of a founder to source and reaches out to an advisor and asks to meet. There is no obligation for anyone to become an advisor. This is like a dating process. The goal is to build a relationship over time, where there is value for both the advisor and the founder in the role.
- Leverage your existing personal and professional networks to connect with individuals that have shared interests
- Use LinkedIn and Clarity to identify and connect with potential advisors.
- Attending local events, joining an incubator, and working at co-working spaces are additional ways to get introduced to potential advisors
Advisor Expectations
As an advisor:
- You meet for coffee, get on the phone, and get to know the entrepreneur and how you can help. Maybe your personal skill set isn’t relevant, but you know someone else that would be a great advisor / investor / customer / channel / whatever.
- You don’t expect compensation up front, you don’t lead with paid consulting offers (this is a huge red flag)
- You show you can be helpful first in moving the startup forward. There is no obligation to engage with a startup. You should not expect compensation and you should always create more value than you extract.
Standard Advisory Board Terms
But back on the founder side, here’s where it seems there is a bit of a problem in Canada: no follow through.
After accepting and otherwise being happy with the advisor’s help, you should reward them with an offer to officially join the advisory board.
Our guidelines for standard advisory terms are as follows:
- 0.1% — 2% depending on the level of advisor.
The level depending on the advisors’ stature in the community, but also their level of involvement. 0.5% is a good level to think about starting from, and 2% is extremely rare unless the advisor is directly helping close customer deals or raise money. - Do not offer cash.
It’s extremely rare that there would be a cash component. If cash is requested from the advisor, walk away, and look for a more sophisticated advisor. For further clarity, if the advisor will be in putting multiple hours per week, they’re not an advisor, they’re a contractor, in which case, cash compensation may be appropriate (see Brad Feld’s Compensation for Advisory Board Members). - Options vest monthly over 2 year period.
- Either can terminate upon 30 days written notice.
- For pre Series A companies, the strike price is set to about 10%-20% that of the last round of financing, or pre-financed companies, the strike price should be about 10% of the estimated value of the company.
- Advisor agrees to one phone call or in-person meeting per quarter.
But no need to dwell on the terms of what they will do for you. Your initial meeting should be representative of what you will get in return, so pay no attention to getting specific on the details here. If it’s not working out, you can both get out of the deal anytime. - Generally, you should expect your advisor to follow up on your meeting with thoughts and links and verify that he/she will make the introductions promissed and in general do what they said they would.
Assuming the advisor accepts, entering into an agreement like this will explicitly link your success to theirs, and add their credibility to yours. Vesting them in your company’s success spreads out your champions, and creates more winners for the community at large.
As a startup founder, you’re going on a long arduous journey and you’re going to need a lot of help along the way. Building a strong set of advisors will be one of your first “asks”. These are people that can complement your skillset and fill gaps on your team, and add credibility (sometimes called social proof or traction), especially for first time founders.
If anyone has helped you in a meaningful way, and you have simply not known the proper etiquette, I encourage you to retroactively offer up advisory board options. Let’s make sure that us friendly Canadians are known for our official follow through, as well as our friendliness.
Thanks to Fasken Martineau for making this template available. You can also find it in the fullstackfoundry Github repo under a CC0 license. You may file issues there, or use Medium to ask questions and make comments below.
BC Advisory Agreement
This Agreement is dated as of {AGREEMENT DATE}.
Between:
{ADVISOR NAME}
{ADVISOR ADDRESS}
(the “Advisor”)
And:
{COMPANY NAME},
a BC corporation having a business office at {COMPANY ADDRESS}
(the “Company”)
Whereas:
The Advisor has certain business expertise and has agreed to provide advice and recommendations regarding the Company’s overall business strategy and future direction.
Now therefore this Agreement witnesses that in consideration of the mutual covenants and agreements herein contained the parties hereto agree as follows:
1. Interpretation
1.1
Where used herein the following terms shall have the meanings set out below:
- (a) “Advisory Council” means the group of individuals appointed by the Company to act as advisors to the Board;
- (b) “Advisory Services” means the advisory services to be provided by the Advisor to the Company as set out herein;
- (c) “Board” means the board of directors of the Company;
- (d) “Business Material” means any financial, market and technical information, methods and plans, trade secrets, know-how, technical expertise and other information relating to the Company’s business and operations;
- (e) “Term” has the meaning given to it in subsection 2.1.
1.2 Governing Law.
This Agreement shall be governed by and be construed in accordance with the laws of British Columbia and the laws of Canada applicable therein.
1.3 Severability.
If any one or more of the provisions contained in this Agreement should be determined to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.
2. Term
2.1 Term.
The term of this Agreement (the “Term”) shall be from and including {ADVISORY START DATE}, to and including {ADVISORY END DATE}, unless this Agreement is earlier terminated in accordance with Section 5.
3. Advisory Services
3.1 Advisory Services.
The Company hereby appoints and retains the Advisor, on a non-exclusive basis, during the Term to serve as a member of the Advisory Council and provide the Advisory Services as requested by the Company from time to time, and the Advisor hereby accepts such appointment to the Advisory Council and agrees to provide diligently the Advisory Services. In providing the Advisory Services, the Advisor will have an advisory role only and report directly to and take direction from the Board. In no circumstances will the Advisor perform any functions of the Board. The Advisor, as a member of the Advisory Council, shall attend four meetings per annum (one per quarter) of the Advisory Council and provide Advisory Services to the Board which shall include:
- (a) making recommendations for both the short term and the long term business strategies to be employed by Company;
- (b) monitoring and assessing the market for the Company’s business and to advise the Board with respect to such markets and to recommend an appropriate business strategy on an ongoing basis;
- (c) commenting on proposed corporate decisions and identifying and evaluating alternative courses of action;
- (d) critiquing the managements’ and directors’ actions and making suggestions to strengthen the management structures, processes and operations;
- (e) providing an objective evaluation of the performance of the Company and its management in relation to competitors within the industry;
- (f) identifying and evaluating external threats and opportunities to the Company;
- (g) evaluating and making ongoing recommendations to the Board with respect to the required management personnel and job functions for the efficient operation of the Company’s business;
- (h) formulating and recommending to the Board appropriate operating policies and procedures and supervising the implementation of such policies and procedures for the ongoing conduct of the Company’s business;
- (i) discussing from time to time any matters pertaining to the Company’s business; and
- (j) providing such other advisory or consulting services as may be appropriate from time to time.
3.2 Board to Act Independently.
The Board shall diligently and responsibly receive all advice from the Advisor and the Advisory Council and exercise its own independent judgment before acting upon such advice.
3.3 Remuneration.
In consideration of the provision of the Advisory Services, the Company shall grant the Advisor {NUMBER OF OPTIONS GRANTED} options to purchase Common Shares in the Company at a price of {OPTION PRICE PER SHARE} per share and otherwise in accordance with the Company’s incentive stock option plan. Notwithstanding anything contained in the Company’s incentive stock option plan, the options referred to hereunder shall vest at the end of each month during the Term at the rate of {FRACTION OF OPTIONS VESTING PER MONTH} per month until the completion of the Term.
3.4 Disclosure of Advisor.
During the Term, the Advisor shall:
- (a) disclose to the Company all of its interests in any transaction or agreement contemplated by the Company or any matter which may taint the Advisor’s objectivity when performing its role as an Advisor hereunder;
- (b) inform the Company of any business opportunities made available to the Advisor as a result of the Advisor’s involvement with the Company or otherwise through the performance of the Advisory Services; and
- (c) not serve as an advisor, or consent to an appointment as a member of the board of directors, of a company which competes, directly or indirectly, with the Company.
4. Confidential Information
4.1 Confidentiality Obligation.
The Advisor recognizes and agrees that any Business Material furnished or to be furnished to it by the Company is to be used only for the purpose of providing the Advisory Services hereunder and that such Business Material will be kept confidential by the Advisor provided, however, that any such Business Material may be disclosed:
- (a) if specifically consented to in writing by the Company; or
- (b) if required by applicable law or by an order of a court of competent jurisdiction.
4.2 Exceptions.
The provisions of Section 4.1 shall not apply to:
- (a) information which becomes generally available to the public other than as a result of a disclosure by the Advisor;
- (b) information which is generally known to knowledgeable business people involved in the business conducted by the Company other than as a result of a disclosure by the Advisor in violation of this part;
- (c) information that was available to the Advisor on a non-confidential basis prior to its disclosure to the Advisor by the Company; or
- (d) information that becomes available to the Advisor on a non-confidential basis from a person or entity other than the Company, unless such disclosure by that person is itself in breach of a confidentiality commitment made directly or indirectly to the Company;
and provided that nothing in this Agreement shall prevent the Advisor from using its expertise and knowledge in the conduct of other business for its own account or as a consultant to others.
5. Termination
5.1 Termination by the Company.
The Company or the Advisor may terminate this Agreement without cause at any time by giving 30 days written notice of termination of this Agreement to the other party. Any termination of this Agreement, either pursuant to this Section or otherwise, will not affect the obligations under Section 4, which will survive such termination. In the event that this Agreement is terminated by the Company, the Company shall pay the Advisor an amount equal to any expenses incurred by the Advisor up to the effective date of the termination to the extent such expenses have not previously been reimbursed. Upon payment of such amounts, the Advisor shall have no claim against the Company for damages or otherwise by reason of such termination. In the event of termination of this Agreement, the Advisor shall, prior to the effective date of the termination, deliver to the Company all books, records, or other information in its possession pertaining to the Company’s business.
6. Indemnity and Limitation of Liability
6.1 Indemnification by the Company.
The Company shall indemnify and hold harmless the Advisor against any and all losses, damages, suits, judgments, costs and expenses arising under any such third party claim or action provided however, that the Advisor provides the Company with:
- (a) written notice of such claim or action within 14 days of acquiring knowledge of the event;
- (b) sole control and authority of the defence or settlement of such claim or action (provided that the Company shall not enter into any settlement which materially affects the Advisor’s rights without the Advisor’s prior written consent); and
- (c) proper and full information and reasonable assistance to defend and/or settle any such claim or action.
6.2 No Liability for Acts of the Company.
The Advisor shall not be liable for any act of the Company or any of its directors, officers or employees.
6.3 Limitation of Liability.
Under no circumstances will either party be liable to the other party for indirect, incidental, consequential, special or exemplary or punitive damages (even if such party has been advised of the possibility of such damages), arising from any provision of this Agreement, such as, but not limited to, loss of revenue or anticipated profits or loss of business.
7. General Provisions
7.1 No Partnership or Agency.
The relationship between the Company and the Advisor is that of independent contractor and nothing herein contained shall be interpreted so as to create a partnership or agency relationship between the parties.
7.2 Assignment.
Neither party may assign any rights or delegate any obligations hereunder without the prior written consent of the other party.
As evidence of their agreement this Agreement has been executed by the parties hereto as of the date first above written.
Full Stack is a pre-seed to seed investment firm run by Boris Mann and Lance Tracey which made 9 investments in 2013 and 2014. It is not currently actively investing. Follow us on Angel List /fullstackventures »
