Monthly Archives: December 2014

The 1 per cent you won’t regret: why it’s worth giving equity to an advisory board

One of the things I’ve learned when running a startup is you cannot do everything on your own. You and your co-founder could be specialists in your field but there will always come a time when you will need help from others. Maybe your marketing efforts fall short of your targets or there are technical challenges beyond your team’s ability. Whatever issues you may face, I believe the best way to solve problems beyond your area of expertise is to seek the advice of other experts. Forming an advisory board is a good way to do this.

Advisors are your helpers. They are a group of experts who can guide you through your business’s blind spots. The right advisors should be able mentor you, help you avoid mistakes and give you unbiased advice. An advisory board is different from a board of directors in the sense that they do not have any legal responsibility to your company’s shareholders. I made this mistake with one of my early startups in the mid-nineties where I tried to invite experienced business people to join our board. They declined the invitation as they were worried about the risks involved.

If you think an advisory board is a great idea for your business, the first thing that you need to do is identify your issues. Do you need help with marketing and sales? Do you need a technical advisor? Identify your key needs – both now and into the future – so you can establish the right advisory board.

The next step is to start looking for the experts. In my view, it is best that you focus your sights on people who have a solid track record and deep industry experience. One of our businesses has international advisors as we are seeking to grow into new geographic markets. It also makes sense to have a variety of advisors, with each person specialising in one area of business. You don’t want three advisors cut from the same cloth.

You can begin your search by joining networking events, by asking your contacts or through the local startup community; I’ve previously done both. You can also be a part of a program like the Founder Institute where there are a broad range of mentors who are keen to help founders building scaleable technology companies.

Once you’ve found the right advisors, you can formalise their role in your company by drawing up a simple agreement. It may include their duties, compensation, and a non-disclosure and indemnification clause. An agreement helps make them accountable to you. It also helps ensure that a request for assistance will be taken seriously and advice will be provided when needed. In terms of compensation, one way to ‘pay’ them is to share a percentage of equity, which can range from 0.15% to 1% of the company’s shares depending on the advisor’s contribution and level of expertise. Of course, you’ll need to get taxation advice about this.

Lastly, be discriminating in choosing your advisory board. It’s important that you surround yourself with people of integrity and honesty, people who will really help you improve your business. You want an advisory board who can bring out the best in you and your startup.

This post was originally published on BRW, a leading business magazine examining the trends and opportunities shaping Australian business.