Sep 06,2019 | 15 min read

Advisors In Start-ups And Early Stage Companies

Author - Associate Sanjani Shah

A lot of people prefer to become an entrepreneur. There are new start-ups emerging in the country almost every month. Many people give it a shot. Some of them survive while some of them are shut due to several reasons. One of the most important things to consider while opening a start-up is hiring an advisor or an advisory committee. This will surely help you survive in the game longer.

Advisors are able to provide strategic advice on the company’s operational matters. If the operation of any company is smooth, 80% success is achieved for sure. Forming a board of directors is necessary but, forming an advisory committee is completely optional. However, it is important to remember that forming an advisory committee or hiring one advisor is crucial for the growth of the company.

The advisors contribute well to the company. They bring in a skill set that can enhance as well as complement the skill set of the founders of the company. It is always beneficial to have someone monitor the strategy and compliances while you bring in the business for your company.

Advisors In Start-ups And Early Stage CompaniesFor start-ups, company advisors can handle responsibilities like fundraising for the company and building networks. At the same time, they can also keep a watch on new talent being hired in the initial stage. The relationship between the advisor and the company has to be friendly and easy going for the benefit of the company. However, it so happens that issues arise while working together and so, it is significant to have a written agreement or contract between both parties. Even if it is a startup, make sure to have the complete documentation on point.

Some of the points that a company should consider adding in the agreement are:

Advisor’s duties and working hours

It is possible for a company to have an advisor for full time or part-time based on the requirement. Thus, the clarity of the working hours is necessary. The advisor agreement should also have a detailed description of the roles of the advisor. The detailed description will provide legal certainty the advisor has on the company. It will also provide clarity on the exact relationship between the company and the advisor.

Conflict of Interest

It is understood that advisors are usually not employees of any company. They are allowed to indulge in other activities and businesses. Thus, the contract should include a written point where it is clearly mentioned that the advisor is not violating the rules of the company. It is important for any company to keep its strategies and growth secretive from its competitors in the market.

The violation of the same should include some strong legal actions against the advisor.

These were two important things that need to be included in the contract. Apart from that, the compensation and confidentiality clauses should also be mentioned. However, these are common for any contract.

At the same time, it is important to understand the need for an advisor or advisory committee in a startup.

An advisory board or an advisor is usually selected by the founder of the company. The board consists of experts in the field who give strategic ideas for the growth of the company. The advisory board is completely separate from the board of directors committee. The founders of the startups add advisors based on their needs. For example, an advisor committee typically consists of a lawyer for legal advice and a branding manager for marketing purposes. Thus, the team is decided in this way.

Different startups have different rules for advisors. Some conduct regular meetings and discuss the agenda of the company while some companies barely meet. Sometimes entrepreneurs prefer working with the advisors individually and thus, they submit their work to the founders directly. In that case, if a company has hired more than one advisor in different fields, they do not meet at all.

The entrepreneur and the advisors need to discuss the relationship and working style before starting to out to avoid any confusion in the future.

At the same time, many startups believe in getting famous and high-profile names on their advisory committee. This helps them with the funding a lot. The investors are usually interested to then learn about the startup as experienced personnel has decided to be a part of it. Also, if the advisor is actively participating in the business it will help investors gain confidence in the business.

Thus, advisors are an important part of any startup. They can guide the entrepreneur in the right way and contribute to the brand value because of their expertise. It is important to choose an advisor based on the chemistry you share with them. You should be comfortable enough to open up to them and talk freely about your business. Only then they will be able to guide you and help you take your business further. If you are taking an advisor on board, make sure you have a role in your mind for them. Advisors would prefer to add value instead of just being connected on paper.

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Lawyered Team

Lawyered Team