31
Advisors for Early Stage Startups David Shen David Shen Ventures, LLC

Advisors for Early Stage Startups at Yale

  • Upload
    dshen

  • View
    3.218

  • Download
    2

Embed Size (px)

DESCRIPTION

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

Citation preview

Page 1: Advisors for Early Stage Startups at Yale

Advisorsfor Early Stage

StartupsDavid Shen

David Shen Ventures, LLC

Page 2: Advisors for Early Stage Startups at Yale

About Me

Page 3: Advisors for Early Stage Startups at Yale

About Me

Page 4: Advisors for Early Stage Startups at Yale

About Me

Page 5: Advisors for Early Stage Startups at Yale

About Me

Page 6: Advisors for Early Stage Startups at Yale

About Me

…and more…

Page 7: Advisors for Early Stage Startups at Yale

Advisors

Page 8: Advisors for Early Stage Startups at Yale

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

Page 9: Advisors for Early Stage Startups at Yale

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

Page 10: Advisors for Early Stage Startups at Yale

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

Page 11: Advisors for Early Stage Startups at Yale

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

Page 12: Advisors for Early Stage Startups at Yale

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

Page 13: Advisors for Early Stage Startups at Yale

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

Page 14: Advisors for Early Stage Startups at Yale

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

Page 15: Advisors for Early Stage Startups at Yale

Involvement Driven By…

• Advisor– Available time– Desire for engagement– Incentives

• YOU– Relationship with advisors– Making time for advisors

Page 16: Advisors for Early Stage Startups at Yale

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

Page 17: Advisors for Early Stage Startups at Yale

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

Page 18: Advisors for Early Stage Startups at Yale

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

Page 19: Advisors for Early Stage Startups at Yale

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)

Page 20: Advisors for Early Stage Startups at Yale

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

Page 21: Advisors for Early Stage Startups at Yale

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

Page 22: Advisors for Early Stage Startups at Yale

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)

Page 23: Advisors for Early Stage Startups at Yale

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

Page 24: Advisors for Early Stage Startups at Yale

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

Page 25: Advisors for Early Stage Startups at Yale

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)

Page 26: Advisors for Early Stage Startups at Yale

“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

Page 27: Advisors for Early Stage Startups at Yale

How Do I Find an Advisor?

• NETWORK NETWORK NETWORK• If you can’t do that you’re in trouble

anyways…

Page 28: Advisors for Early Stage Startups at Yale

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.

Page 29: Advisors for Early Stage Startups at Yale

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!

Page 30: Advisors for Early Stage Startups at Yale

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!

Page 31: Advisors for Early Stage Startups at Yale

Questions? Comments?

EMAIL: [email protected]