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Advisors for Early Stage Startups at Yale
 

Advisors for Early Stage Startups at Yale

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Presented on 6-24-10 at the Yale Entrepreneurship Institute to their summer incubator startups.

Presented on 6-24-10 at the Yale Entrepreneurship Institute to their summer incubator startups.

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    Advisors for Early Stage Startups at Yale Advisors for Early Stage Startups at Yale Presentation Transcript

    • Advisors for Early Stage Startups David Shen David Shen Ventures, LLC
    • About Me
    • About Me
    • About Me
    • About Me
    • About Me … and more…
    • Advisors
    • What Does an Advisor Do?
      • Gives you advice on everything you do
      • Teaches you things you don’t know
      • Keeps you out of trouble
      • Makes important introductions
      • Can help you fund raise and/or hire
      • Can add to your positive reputation
    • Why Advisors?
      • In addition to everything on the previous slide…
      • It’s hard to do a startup by yourself, co-founders and your team
      • You can’t know everything (even when you think you do)
      • You often get myopic when you’re heads down 24/7
    • Who’s the Typical Advisor?
      • Typically someone who’s been in the industry for some time so he/she has a lot of experience and contacts
        • Can come from either the same industry or a target industry for your business
        • Have a lot of knowledge about aspects of the business – ie. strategy, operations, sales, product
    • What Makes a Great Advisor?
      • Besides experience + contacts…
      • Willing to be engaged with your project
      • Time to be engaged with your project
      • Great teacher
      • Personality aspects
        • Comfortable with influence, doesn’t get mad when you don’t listen/disagree/etc, keeps throwing ideas at you
    • Early Stage Startup Advisors
      • Early stage is different than later stage
      • Think about how a startup operates:
        • Lean vs. more resources
        • Searching for biz model vs. extending existing one
        • Adapt/creative/pivot vs. incremental/expand
      • Startup folks require different personalities, skills, and experiences
    • Early Stage Startup Advisors
      • Company needs are different, and type of advisor you’ll need can be different
      • Advisors who are experienced with startups and how they operate will be better as advisors of strategy and product
      • Advisors for industry info and contacts, less necessary for startup mentality
    • Depth of Involvement
      • The aloof advisor: infrequent, once a quarter, or never
      • The active advisor: engaged, frequent phone calls/emails/meetings on demand
      • The “employee” advisor: is doing actual work, up to full time
    • Involvement Driven By…
      • Advisor
        • Available time
        • Desire for engagement
        • Incentives
      • YOU
        • Relationship with advisors
        • Making time for advisors
    • Involvement: Advisor
      • Many are just too busy to engage
        • Busy personal and corporate lives
        • Hard to contact and get responses
      • Incentives
        • Generally, more compensation can drive more involvement but not always
      • Try to find those with time and desire to help you
    • Involvement: YOU
      • Traditional way: form advisory board, meet once a quarter
      • Other ways:
        • On-demand: negotiations, email, phone, reviews and meetings
        • Would not recommend setting up a standing weekly meeting
      • Set the relationship from the beginning
    • Involvement: YOU
      • Don’t wait to contact advisor!
      • Be aggressive in engaging them
      • Always be respectful of time and what you’re asking them for
        • Ex. Phone calls, emails, live meetings, introductions
      • BAD: you don’t make time to engage advisors you worked so hard to find and sign up
    • Involvement: YOU
      • Assume that you’ll be giving compensation to advisors for time spent that is not regular
        • Do not get paranoid about whether someone is going to do the work and make them show up weekly. This is NOT how advisors work!
        • Instead if they do not deliver, then just fire them (more on this later)
    • Length of Engagement
      • Advisor terms are typically 1 or 2 years
      • Personal experience says one year is too short, and 2 years is about right
      • If on-demand, typical activity is heavy in the beginning, which tapers off to on demand
    • Advisor Compensation
      • Early stage: recommend options as payment
        • Later stage: can pay in options and/or cash
      • Want alignment in goals – options best for that
      • How much?
        • Range: .1% to 1% (or even higher) of common stock pool at early stage
        • Ex. 8000 to 100,000 options
    • Advisor Compensation
      • Typical payment schedule is vesting monthly over the term
      • Expect that there will be months where there will be little or no interaction with advisors
        • They are on-call when you need them, not “paid” hourly (typically)
    • Advisors Are NOT Consultants
      • Those pesky lawyers and their contractor/consulting agreements
      • Consultants are mercenaries, advisors are not.
      • You should treat advisors like board members
      • Importance of indemnification
      • Bottom line: Advisors are important, honored individuals and should be treated as such, not mercenary consultants
    • Advisor Agreement
      • Reflection of your relationship with them
        • If you’re putting them above consultants, then don’t give them a typical company friendly consulting agreement!
      • Advisor agreement should have some favorable terms
    • Advisor Agr vs. Consulting Agr
      • Advisor Agreement
      • Expenses covered
      • Confidentiality has capped time limit (~2-5 years)
      • Indemnification
      • Non-exclusivity
      • Paid in options typically, with change in control accelerated vesting clause
      • Vesting over term
      • Consulting Agreement
      • Expenses billed or within budget
      • Confidentiality in perpetuity
      • No indemnification
      • Can’t work for competitors ever
      • Payment in cash
      • Billed hourly for services (sometimes by project)
    • “ Firing” Advisors
      • It does happen
      • Many reasons:
        • They aren’t delivering what you want them to deliver
        • They aren’t engaged
        • Strategy shift means that you need someone else
      • No consistent process here, very ad hoc on the entrepreneur on reasons to fire (or not)
      • DO NOT FIRE simply if you are not talking to them frequently
    • How Do I Find an Advisor?
      • NETWORK NETWORK NETWORK
      • If you can’t do that you’re in trouble anyways…
    • Signing Them Up
      • Once you find someone…
      • Convince them that your project is awesome and that they will get a lot out of being involved
        • Personal satisfaction
        • Options upside
        • Ego from being involved and from those who want their expertise
        • Etc.
    • Signing Them Up
      • If you can, check references
        • Talk to others who have worked with them
        • Some people weren’t made to be good advisors
          • Ex. Personality aspects, too busy, not engaged
      • Prepare advisor agreement and compensation
      • Get signed, go to work!
    • Summary
      • Advisors are very useful to startups
      • Help can be gained without use of cash
      • Find advisors who were entrepreneurs and/or know how startups work
      • Engaged, active advisors are better than passive ones
      • You define/drive the relationship, don’t waste the opportunity to use your advisors
      • Advisors ARE NOT consultants! Treat them better!
    • Questions? Comments? EMAIL: dshen@davidshenventures.com