One of Silicon Valley’s success mantras is how startups tap into functional experts via their advisory boards. Check out this snippet
This is from a Sequoia post on #SaaStr22. It points to how Silicon Valley companies leverage their relationship with advisors having deep functional expertise, and this has now become part of their tribal knowledge ( or “unfair advantage”).
In contrast, startups in India IMHO generally underutilize advisors or fail to engage them effectively. I seldom see Indian startups having a sound advisory board of functional experts… though they do have lots of angel/seed investors. Why would this be?
I think this is due to a misplaced understanding of the strategic role advisors can play & how they’re diff from investors! Investors & advisors have separate roles to play – sometimes they may happen to be the same person, but not necessarily.
I’ve seen many people (or mentors) counsel startup founders not to get an advisor on board, unless he/she also invests in the round (aka “has skin in the game”)! This is just bad advice and displays a faulty interpretation of the underlying dynamics. Let me elaborate why…
1) Advisors are professionally acclaimed people with strong functional expertise in some area, that you would love to hire or bring on board, but can’t.. either you can’t afford them, or they are not available, or out of bounds.
Think 10X impact from an industry expert or a highly experienced maestro!
2) Seed/Angel investors on the other hand are people who are looking to invest in the startup and make a financial upside. Off course, they can be highly skilled in one or more areas and can be valuable advisors as well, but that’s not necessary.
If startups conflate the two roles, they end up shrinking the advisory base and can miss out on a talent/skill pool that could help them leapfrog in specific areas. Not all advisors are looking to invest – they may not have the financial resources, or think startups are too risky (v/s public mkts) to invest their own money.
It’s not hard to see why this pattern shows up prominently in India – many business models are transactional in nature & this shapes the prevailing worldview and practices in the ecosystem. Blame our (in)famous value consciousness! If the advisor doesn’t demonstrate skin in the game by investing (the transaction!), how do we know they care? There’s an inherent trust deficit in giving out “free equity” to anyone!
IMHO looking at the advisory role from a transactional lens is missing the woods for the trees. Deep domain expertise is incredibly hard to get by for a fledgling startup – if you can potentially get an industry leader to help you, imposing the investing criterion is unwise and self-defeating. These are resources startups badly want to have access to, not the other way around!
Case in point – at SlideShare we were very lucky to onboard a terrific advisory board in 2007 – Guy Kawasaki (top communications coach & marketer), Hal Varian (Chief Economist at Google & who was Rashmi’s prof at Univ of Berkeley) & Dave McClure (growth hacking & distribution guru).
We offered them advisory equity – they all were renowned in their respective areas, and their expertise could make a real diff to SS. As a small startup, there was NO WAY we could have hired them (or anyone else of that caliber). It so happened, Hal & Dave later also angel-invested in us… but that was totally incidental. Clearly we valued them highly and felt the (little) time we got to spend with them once or twice a year was totally worth it.
I really hope startups in India don’t fall for this “advisors must also become investors” thinking that many mentors in the Indian ecosystem espouse and drill into founders’ mental models.
Here’s what I suggest:
1) As the Sequoia snippet explains, keep aside some advisory equity to use in a focused, targeted way to onboard valuable functional advisors who can help your startup shift orbits.
2) Pick professionals who are real craftsmen in their respective fields. And do this only once your startup can demonstrate progress – many advisors may not want to associate until you’ve hit some milestones (and that’s ok).
3) Offer them equity from your advisory pool, don’t worry about investing. If they are good, their inputs will be worth FAR more than their $$.
4) If they also show interest in investing, have them join in.
5) Possible India doesn’t have as much depth in the advisory pool (as SV), but the imp thing here is the principle involved. I’d argue if you don’t conflate the two roles, the pool is much bigger than what it appears!
6) In your mental model (& in your funding pitch decks), keep/show the board of advisors separate from your investors pool.
Recommended Read: https://carta.com/blog/advisor-advisory-shares/