Startup Advisor Equity? RDI Hub explores this thorny debate

Startup Advisory equity?

Startup Advisory equity?

Bringing on advisors or creating a network of people who can help

you is crucial for an early stage founder but how you find the right

advisors, get them interest and do you need to compensate them?

Startup advisory Equity

You may have seen this topic blow up on twitter and in the media in

Ireland during the summer. The sale of funeral website RIP.ie was at risk

because of a legal claim from an ex-business associate asserting a 20 per

cent interest in the website. You can read more about this here.

What are the different types of advisors?

What to look for in an advisor

How to find and approach advisors

This is a fairly significant split in the startup camp on whether startup advisors should get equity. We polled startups on social with some interesting results.

The question was - Do you give your start-up advisor equity?

Equity vs cash

How investors view Startup Equity

What are the compensation options How to set expectations

What is ok to ask of an advisor and what is not

The Twitter crew were 87.5% NO But the LinkedIn crew were closer to a 40/60 split.

Key insights

Key Resources

We are not sure what that says about the demographic split across the

social channel but we know it’s a difficult to get a straight answer on this.

For Septembers Founders Circle we were joined by two very experience

speakers Heather Morris, a Private Investor and Former Chief Strategy

Officer, Chegg Inc and DC Cahalane one of the best-known figures in the

Irish Startup Ecosystem to debated the pros and cons of startup advisory equity and share the international vs Irish experience.

Startup advisory Equity

At what stage do you need an advisory board

What are the different types of advisors?

What to look for in an advisor How to find and approach advisors Equity vs cash

How investors view Startup Equity

What are the compensation options How to set expectations

What is ok to ask of an advisor and what is not Key insights

Key Resources

They tackled some key questions for us

At what stage do you need an advisory board?

According to DC Calahane not all startups need a advisory board. “it's all about the mix of experience and the mix of skills that you have in your

team, and where you're going, what you know and what you need.”

Heather Morris said. Internationally the startup advisor equity debate is

non existent. If an advisory is asked to be a startup advisor there is an

expectation of equity. In the US it is very much like a job offer. It is a

straightforward conversation. “I want someone on my advisory board.

Here's the terms. Here's the vesting schedule. Here's how many hours I'm expecting.”

In Ireland it’s not as clear cut. Often advisory boards are used to build

credibility and advisors are asked to introduce startups to potential cus-

tomers and investor for free. Very few startups set out clear expectation

for advisory board members and shy away from equity conversations.

Often deliverable are not discussed so equity discussion are ad hoc and

difficult to navigate.

Why you might ask is the experience so different in Ireland? – well as a

nation we try and get as much as we can for free and hate talking about

money according to DC Cahalane.

“Often, entrepreneurs don’t build a board until they are forced to...this is dumb, as you are missing the opportunity to add at least one person to the team, who, as a board member can help you navigate the early process of

building your company and raising the first round, in some cases this can be transformative”

Startup advisory Equity

Brad Feld, Co-founder Techstars, Managing Director Foundry Group What are the different types of advisors? General, Technology or

What are the different types of advisors?

What to look for in an advisor How to find and approach advisors Equity vs cash

How investors view Startup Equity What are the compensation options How to set expectations

What is ok to ask of an advisor and what is not Key insights

Key Resources

specific task advisory (M&A)

There are many roles in an advisory board. DC Cahalane gave a great

example:

“ I remember one particular startup I was involved in reach out to a well known

executive. We met them and we were very impressed with them, we thought, he's going to be a big advantage for our business.

He said, I would love to be on the advisory board, he was very clear that his strength was mergers and acquisitions. He asked to be put on the advisory

board and never called, until the day that the startup get an offer to sell the company. And the day the startup get an offer he committed to taking two

weeks off work, and guarantee the startup would get at least, 10 or 15% more on the asking price.

Key Insight:

Know the skill set of the advisors, know when you need them and what

you need them to do. Build in deliverable that will add tangible value to your startup.

Top tip:

There are lots of good advisory in the ecosystem AND there are some not

so good. Ask around about anyone that approaches you to be on your advisory board. Ask RDI Hub or your local hub before you consider bringing them on board.

TNW have categorised the types of advisor as The Big Name More often than not is it a key player in the industry, someone with so much Startup advisory Equity

clout that merely mentioning their name will encourage other industry experts to make an investment.

The Customer

What are the different types of advisors?

What to look for in an advisor How to find and approach advisors Equity vs cash

How investors view Startup Equity

What are the compensation options How to set expectations

What is ok to ask of an advisor and what is not Key insights

Key Resources

It’s critical for you to understand who you’re selling to, and you the best type

of person to get that kind of advice is The Customer. If you’re selling a B2B

product directed at a marketing firm, hire a marketing firm CEO or high level director.

The Mentor Someone who’s been there before and whose style meshes with yours will be a valuable asset to any company as a mentor to the CEO.

The Mentor will probably be most involved out of the four types in your

company’s daily happenings. You should meet with The Mentor once every couple of weeks, but keep in mind that you’re working together on your

company, meaning you should always lead the conversation The Industry Expert

You need to add someone who knows how to do the actual work. They’re there to help you tackle product problems and overcome any technical obstacles.

What to look for in an advisor?

There will always be people who want to be on startup advisory board but you are looking for someone not just for reputation, their experience need to be relevant, actionable and measurable..

Startup advisory Equity

Say you need marketing expertise. Many potential advisors work for a

giant global multinational who are used to having infinite resources and

ad budgets and as a startup you do NOT. Often this is a mismatch when

you need they're not able to translate their perspective and their experi-

What are the different types of advisors?

What to look for in an advisor How to find and approach advisors Equity vs cash

ence into something actionable or they can’t scale their advice down to

actionable steps that you can use.

In this instance you might be better to access a mentor for some free

advise rather than bringing someone on your advisory board. RDI Hub run mentoring session, check out the list of mentors here. Heather

seconded this saying “sometimes you have some of the advisory class that has no understanding of operational needs and of the startup constraints

that can be a source of contention.”

How investors view Startup Equity What are the compensation options How to set expectations

What is ok to ask of an advisor and what is not Key insights

Key Resources

How to find and approach advisors?

Figure out what you need - is it connections for potential strategic

partnership, investment or introduction to customer or expertise in for a

specific stage M&A? Once you know what you need then you can start to

look around for someone that would be a good fit.

Do your homework. Heather Morris gets approached on LinkedIn 10 times a day so startup have to do considerable research on the

potential advisors to ensure they get cut through. Find out what other

startups the person is advising. This will give you an insight into the Startup advisory Equity

verticals and areas of interest. Know their background and areas of

expertise.

Ask around - not all advisors are equal, ask you local hubs, RDI Hub

and other startups if they have dealt with this advisor in the past.

What are the different types of advisors?

What to look for in an advisor How to find and approach advisors Equity vs cash

How investors view Startup Equity What are the compensation options How to set expectations

What is ok to ask of an advisor and what is not Key insights

Key Resources

Get in front of the advisor – Get a warm intro if possible, LinkedIn and Twitter are great tool but Heather finds some of her startups on crowdfunding sites. Something to consider.

Reach out with a clear ask, don’t use the terms “ pick you brains”. Be

specific about the problem you are having and the added value the advisor could bring to the startup. Be clear about why you think it

would be a good fit with their experience and portfolio. Organise a meet up and go from there.

Example: Hi x, I see need done 10 acquisitions ( AKA I have done my homework and have a specific task in mind), we're about to do this

(outline potential value for the advisor), this is why I think it might be

relevant and I know you've invested in B2C companies and that's your background ( aka this is why it is relevant to you), this would be really critical to us and I think it might be fun for you to. Our startup is a ….

Equity vs cash?

Equity is more common because you can build in a vesting agreement

that protects you, if the advisor delivered on what they say they will get

the equity, if they don’t and they move on. Equity ensure advisors also Startup advisory Equity

What are the different types of advisors?

What to look for in an advisor How to find and approach advisors Equity vs cash

How investors view Startup Equity What are the compensation options How to set expectations

have skin in the game… The Founders Institute have created a

agreement which may be useful reference tool. Check it out here How investors view Startup Advisor Equity?

If you have a clear business case as to why the startup advisor got

equity there will never be an issue. Eg Mary got x% equity because she

connected us with 3 strategic partners which has lead to €300k in revenue in the last 12 months.

What are the compensation options There isn’t a golden rule and Heather said “all of this stuff is made up at every level whether that is startup negotiation or a billion dollar fund,

you are fitting a piece into a puzzle” but it has to have a strong business case you can stand over. It comes down to the advisory impact and time.

“If an advisors connections or advice has set your company

up for success, in the course of a year to the value of 10,000

euros and your startup valuation is 500k, the advisor

should get 2% equity for their effort. This varies depending

What is ok to ask of an advisor and what is not

on who you are talking to but it is somewhere between

Key Resources

Golden rule – be able to justify the math to future investors.

Key insights

0.25%-5%. Y Combinator created short video - here

How to set expectations?

Be upfront and play to the advisors strength.

Know that all advisors have a shelf life and after they have added their value they should move on . Obviously don't burn bridges!

Treat it like a Job Offer. Outline the terms, the vesting schedule and how many hours you expect them to put in.

Startup advisory Equity

What is ok to ask of an advisor and what is not.

Important distinction here. An advisor is not a consultant or service

What are the different types of advisors?

What to look for in an advisor How to find and approach advisors Equity vs cash

How investors view Startup Equity

What are the compensation options

How to set expectations

What is ok to ask of an advisor and what is not Key insights

Key Resources

provider, Your lawyer and accountant are not advisors who would

get equity – theses are service providers. A advisor is not something

who will deep dive and do the operational delivery of say a

marketing plan. An advisor may input on the strategic direction and connect you with talent but he/she is not the person to deliver it.

There is a line between consultant and advisor.

Once you have clear on the advisors role and have agreed deliverable everything else can we worked through.

There is a fine line between Angel investor and advisor “ if you want

advice ask for investment and if you want investment as for advice “. some wise words to live by.

Key insights from the session Watch for the “Bad actors” . There are people in the ecosystem advising 10+ startups for €1500 a month…

Ask around - Everyone thinks they can be a startup advisor but that does not mean everyone is a good one.

Good advisor should get equity but not everyone wants it. Have

open conversations

Know what you need and be clear about your expectation and deliverables.

Treat it like a job offer

Ensure diverse boards with diverse skillset and backgrounds, Ireland is a small place - its important to scale and Advisory Board can help make that happen “Get off the island as quickly as possible” and “Start local Go Global”

Startup advisory Equity

Key resources Startup Boards Brad Feld and Mahendra Ramsinghamhani @

What are the different types of advisors?

What to look for in an advisor

How to find and approach advisors Equity vs cash

How investors view Startup Equity

What are the compensation options How to set expectations

What is ok to ask of an advisor and what is not Key insights

Key Resources

https://www.vitalsource.com/ie/products/startup-boards-brad-feldmahendra-v9781118516843

Ireland Institute of Directors @ https://www.iodireland.ie/ A huge thanks to our experts Heather Morris and DC Cahalane and to all the founder who openly shared their experience and lessons learnt.

About the experts Heather Morris is a Private Investor and Former Chief Strategy Officer,

Chegg Inc. As Chegg’s former Chief Strategy Officer, Heather drove strategic planning for the company as well as leading the corporate development

and investment functions. During her time at Chegg, Heather successfully completed a series of strategic acquisitions that bolstered the company’s offerings in math (Mathway, Math42), writing (Imagine Easy Solutions,

including EasyBib and BibMe, as well as WriteLab and RefMe), tutoring

(InstaEDU), study tools (StudyBlue), skills-based learning (Thinkful) and

careers (Internships.com), as well as several investments, both domestically and internationally.

Prior to joining the company, Heather worked on the Internet and Digital

Media Investment Banking team at J.P. Morgan. There she acted as Chegg’s financial advisor starting in 2010, including private placements, M&A, and taking Chegg public in 2013. She also led coverage and advisory of

emerging private companies as well as covering large consumer Internet

companies like Facebook, Netflix and Dropbox. After completing her BBA

with an entrepreneurship concentration at Brock University in Ontario,

Canada, Heather went on to complete her MBA from The University of

Chicago Booth School of Business with Analytical Finance and

Entrepreneurship concentrations.

Having recently relocated to Ireland, Heather is now leveraging her prior experience to support, advise and invest in startups, locally and abroad.

Startup advisory Equity

One of the best-known figures in the Irish Startup Ecosystem, DC

Cahalane is a partner at JOLT Venture Studio. He co-founded BUILTIN-

CORK and REPUBLIC OF WORK. Previously has held growth roles in some of Ireland's most successful international startups, such as Trustev and

Teamwork, as well as senior executive and VP roles in the USA and UK. What are the different types of advisors?

What to look for in an advisor

How to find and approach advisors Equity vs cash

How investors view Startup Equity What are the compensation options How to set expectations

What is ok to ask of an advisor and what is not Key insights

Key Resources