There are a Number of Different Types of Startup Advisors
I was recently asked to answer a question on Quora about the difference between a startup advisors and seed accelerators. I used this question as an opportunity to explain a bit more about the different types of advisors that a startup should consider bring into the fold in their companies. This is by no means an exhaustive list, and you may want to get advice and guidance from some other type of specialist depending upon your specific circumstances and business challenges, but this is a pretty good list to get a baseline understanding.
Startup Accelerators and Incubators
A startup accelerator or incubator typically provides space (real estate), development programs and mentorship in exchange for equity in a company. Frequently, these entities will also provide a modest dollar investment, but it is usually low and disproportionate for the amount of equity that they take in a company (I’m certain that the accelerators and incubators will disagree with this assessment).
In addition to the office and lab space, you are also getting access to other entrepreneurs in a collegial environment. If you have an excellent mentor in such a program, they can be like a startup advisor that provides coaching and potentially a network of potential investors in your company.
I do pro bono work at a San Diego incubator called EvoNexus. They are a little different than other accelerators in that they have no fixed ‘graduation date’. A graduation date is set at the time of initiation into the incubator based on the specific goals of the startup.
Some of the most notable incubators are Y Combinator, 400 Startups and TechStars. These types of entities typically attract first time entrepreneurs and some have had companies as graduates with amazing success stories.
A startup advisor, in contract to an incubator/accelerator, does not provide access to office and lab space. There are a number of startup advisors including:
- Corporate attorneys
- Patent attorneys
- Human resources attorneys
- Contract CFOs
- Members of you business or technical advisory boards
- Members of your board of directors
- Investment bankers
- Business and executive coaches and advisors
Various Types of Attorneys
Based on my experience, I believe it is essential that you get a experienced and highly competent corporate attorney. I’ve seen way too many companies skimp of this with results that vary from bad to catastrophic. Depending on the complexity of non-disclosure agreements and customer contracts that you enter, you will want a good attorney to help you review these things.
The second key advisor that you need is a competent IP and patent attorney. The importance of this person can vary depending on how much intellectual property you are inventing and your strategy around trade secrets versus patents. To help with these decisions, I think it is a good idea to have one or two highly experienced CTO-type people on you tech advisory board.
Having an excellent HR attorney is important when negotiating employment agreements and establishing key policies (e.g., all employees and contractors need to sign a proprietary inventions and non-disclosure agreement).
In any company, it is important to have a bookkeeper and some accounting support. This is sometimes done ‘in-house’, but I think outsourcing this function makes sense for most companies. You many need occasional support from a contract CFO to manage this function, banking relationships, assistance in raising outside capital, and building a financial model and plan for your company. But this isn’t necessarily a requirement.
Technical and Business Advisory Boards
Advisory boards are a great place to bring experts into your company without paying them cash. You typically want to find people with domain expertise or specific product technical knowledge to add to these boards. When establishing an advisory position like this, it is important to have your attorney help with the contract.
Board members frequently are significant investors in your company and/or people that are like members of your technical or business advisory board and you want them even more involved in your company. Keep in mind, when someone becomes a member of your board of directors, they have a fiduciary responsibility to all shareholders, not just the founders or the CEO of the company. I’ve seen many CEOs and company founders rely exclusively on their board for coaching and advice, and this can be a bad situation when the proverbial ‘shit hits the fan’, like it does in all businesses.
Investment bankers are a special type of advisory that must meet certain FINRA requirements and can be compensated for helping you to raise capital based on a success/performance basis, which is typically a fixed fee or a percentage of the amount of capital raises, plus their expenses. Bankers are a mixed bag. In my experience, most startups should not use investment bankers unless they are going public through an IPO or considering a M&A transaction for selling their company. It is not typically advisable to raise capital from VCs using a banker. If you are a late stage company with a special situation where you need to run a broad process to raise capital, specialty bankers can sometimes be helpful there as well.
Various Types of Coaches and Advisors for Startups
Now to executive coaches and advisors. I put this group into four broad categories, but there are many more.
First, there are professional coaches with some type of business coaching certification. These people typically have been coaches as a profession and speak from their experience coaching people and use of a set of assessment tools that they have become expert in applying to individuals and teams. I have used executive coaches like this in the past, with varying success. In most situations, you want to retain this type of coach for a three to six month engagement depending upon the project.
Second are advisors that will help you raise capital, but they are not bankers that meet the FINRA requirement for being a broker/dealer. These are typically crowdfunding sites and the like. There are also specialty advisors the help companies with administration and compliance of their Regulation A+ and ICO offerings, like Manhattan Street Capital, where I am an advisor.
Third are marketing advisors that help with branding, online marketing, public relations, and other important marketing functions. These types of advisors can be either large agencies or individuals.
The forth and final type of advisor, which I think is one of the most important things a startup CEO needs is a mentor. This is someone that has been a CEO and has walked in your shoes. They have grown and built businesses. They have raised outside capital. They have bought and sold companies. This is what I do. Advisory services from this group can include 1:1 mentoring, facilitation of peer groups, online coaching and courses, and specific project work for a company or CEO. Sometimes these individuals can be part of your advisory board or your board of directors. Keep in mind the potential conflict of interest if you decide to have these individuals become board members. Don’t get me wrong, I think it is critically important to have board members like this and not just VCs with limited or no operating experience. I have found this to be essential in my companies. Just keep in mind the potential conflicts.
Hope this helps, For more info about coaching and advisory services, you can check-out the QuestFusion website. I love working with entrepreneurs and providing guidance to promising startup CEOs.
This is Patrick Henry, CEO of QuestFusion, with The Real Deal…What Matters.
This article originally appeared as an answer to a question on Quora.