Building Reciprocal Advisor Relationships
Having a great advisor on your side can be transformational for many startups - they can share expertise, be a sounding board for your ideas, and open doors with investors. But where do you find advisors that are a match for your business? How can you get the most value from the relationship? And how should you compensate them for their time and advice?
To help answer these questions, we spoke to Lisa Brasher, Senior Director of Investment Relations with the Los Angeles Cleantech Incubator, aka LACI. Lisa spends her days helping founders make strides, and gave us invaluable insights on how they can find their first advisor and navigate the relationship.
What should you look for in an advisor?
Before you bring anyone onboard, you need to have a solid idea of how outside help will actually serve your company. You’ll want to bring someone in who can fill the gaps on your team, so have a discussion with your colleagues about what’s missing first. Create a safe space where people can be open and honest. If you were to create the perfect team to build this business, what would it look like? How does that compare to the current structure of your company?
However, you’ll need to go beyond your team’s opinion to fully understand what your roadblocks are. Seek out advice from friends, other founders, or mentors at your incubator to get an outside perspective on what your business lacks. Put your ego aside and be open to constructive feedback, but at the same time be careful you don’t listen to the wrong advice - you know your company better than most. Gather a broad range of perspectives and pick out what you think is reasonable, keeping a sense of humility in mind.
Finding an advisor who’s a good fit
The first - and often the most effective - step to take towards finding an advisor is to leverage your existing network. This might include investors or potential partners, but if you’re in an incubator or an accelerator, you’ll also be surrounded by other founders - so harness that opportunity. There’s probably a lot of overlap between your companies, and they’ll likely be able to point you towards people who have advised them in the past.
If there’s a very specific area that you need advice in, and you’ve exhausted your network without finding the right person, then you can start digging into LinkedIn, online communities, or industry specific associations. Do your homework to make sure the people you’re targeting actually have relevant and recent experience in the area you need help with.
Show up with an offer
When you seek out a potential advisor, make sure you have a compelling offer for them, as the prospect of a one-sided relationship won’t make it worth their while to help you. If you have something to give them in return, you increase the likelihood that you’ll get a response - whether that then develops into an advisory relationship is up to you.
Possible offers include equity in your company, a consultant fee/cash, services your company can provide, or potential for future full or part time employment. Because cash is so vital for helping early-stage founders scale, providing equity is the more common tactic.
Tips for issuing equity
The amount of equity you’ll issue to an advisor will be lower than a full time employee - generally an eighth to one percentage point, though this could rise depending on how involved they become with your company. They might end up on your board of advisors, become employed in a full time or part time position, or simply be someone you speak to once a month.
Don’t give the advisor equity upfront - it will need to vest, though not as an employee’s would, as most advisor relationships are much shorter (think 1-2 years). A typical schedule would have no cliff, since they’re starting right away, and vest monthly or quarterly to make sure there’s incentive for them to continue giving advice.
Be careful of bringing on advisors who turn out to be duds - this is a possibility no matter how thoroughly you do your research, but many founders in this situation still won’t feel comfortable withdrawing their advisor agreement. Make sure you’re completely comfortable with the fact that the advisors you bring on might not offer anything helpful, and that your contract covers you in the event of this happening. You don’t want to be forced into paying them for bringing nothing to the table.
Crucially, don’t take this as legal advice on how to issue equity - whenever you’re messing with your cap table, or signing a contract with an advisor, you need to speak to your lawyer. Find an attorney with experience in these situations who can help you parse through the confusing legalese. Stay away from any advisor agreements you might find on the internet; they often gloss over key elements around stock issuance and SEC-compliance, and this can present serious issues for your business down the line.
Elevating your advisor relationship
To fully leverage the potential of having an advisor, you should show up with a clear, realistic idea of how they can help you. You need to be the one who drives - if you don’t ask, you don’t get. Ask for a full rundown of everything your advisor can do for you, and find out what they need from you to make this a reality.
As soon as you sign an agreement, they’re being compensated and should be held accountable to whatever agreement you made. Make sure you're taking advantage of everything that appealed to you in the first place about having this person as your advisor - that includes their network as well as their advice and experience. Remember that it’s a two-way relationship, and they’ll expect you to use their advice to grow your business - after all, they now have a stake in its success.
Seek out advice everywhere
Don’t stop looking for constructive advice, even once you’ve brought an advisor on board. It doesn’t have to be in an official capacity - you can get neutral, informed, advice from people that don't necessarily work with you. For example, ask investors for a few minutes of their time following an unsuccessful pitch to give you invaluable input on what the missing piece was.
Occasionally, people will give you advice that isn’t useful. It's your job to filter the feedback you get, but gathering information always has immense value, whether you end up taking action on it or not.
Lisa is the Senior Director of Investment Relations with the Los Angeles Cleantech Incubator (LACI). Prior to joining LACI, she spent 15 years working in the finance sector; the last 10 years with Goldman Sachs in their Asset Management and Private Wealth Management divisions. Her interest in climate focused solutions prompted her to make a purposeful career pivot to impact and climate investing, which brought her to LACI. She’s also a mission-focused Angel Investor, a CalSEED Grant Award Reviewal Committee member, and a Founding Fellow of both the On Deck Climate Tech and On Deck First 50 Fellowships.