Courting Advisors – A Guide for Founders

Editor’s Note: This article was written by Danny Robinson and Boris Mann. Danny is a founder of Perch and long-time entrepreneur who has built companies on both sides of the border. Boris Mann is a managing director at Full Stack, a napkin capital investment firm in Vancouver.  Both Danny and Boris are investors in Contractually .

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One of the great things about the tech industry is the generousity of people, who have ‘been there and done that’, to share their time with entrepreneurs. The energy of sharing, connecting, approachability and equality makes startups so attractive.

Lately, there is an increased demand for attention and engagement of advisors and mentors. And, in speaking with other advisors in the community, there is a feeling that some entrepreneurs are exploiting the system and taking advantage of the good will of others. It’s not necessarily intentional or deliberate. Entrepreneurs are trying to get meaningful advice to maximize the outcomes of their companies for the least cost.

There are increasing demands on advisors, and it is partially the role of the advisor to manage their workload and volunteer time. But it is also the responsibility of entrepreneurs to understand the circumstances of when to ask someone to join your advisory board and when not to.

A Quick Guide to Recruiting Advisors

When a founder feels like he/she could use advice from someone experienced in a certain area. Whether it’s getting go to market strategy, product design, fund raising, corporate structure, making introductions, or simply adding credibility to the company (though don’t overplay the advisory board when raising capital – see Mark Suster’s post). Getting an advisor to help you out with skills that you don’t have inside the company is a great way to move forward.

  • One of your early “asks” to anyone you meet is to help introduce you to a potential advisor
  • 1 – 3 official advisors is a good number to aim for initially

Finding an Advisor

It is the responsibility of a founder to source and reaches out to an advisor and asks to meet. There is no obligation for anyone to become an advisor. This is like a dating process. The goal is to build a relationship over time, where there is value for both the advisor and the founder in the role.

  • Leverage your existing personal and professional networks to connect with individuals that have shared interests
  • Use LinkedIn and Clarity.fm to identify and connect with potential advisors.
  • Attending local events, joining an incubator, and working at co-working spaces are additional ways to get introduced to potential advisors

Advisor Expectations

As an advisor:

  • You meet for coffee, get on the phone, and get to know the entrepreneur and how you can help. Maybe your personal skill set isn’t relevant, but you know someone else that would be a great advisor / investor / customer / channel / whatever.
  • You don’t expect compensation up front, you don’t lead with paid consulting offers (this is a huge red flag)
  • You show you can be helpful first in moving the startup forward.

There is no obligation to engage with a startup. You should not expect compensation and you should always create more value than you extract.

Standard Advisory Board Terms

But back on the founder side, here’s where it seems there is a bit of a problem in Canada: no follow through.

After accepting and otherwise being happy with the advisor’s help, you should reward them with an offer to officially join the advisory board.

Our guidelines for standard advisory terms are as follows:

  • 0.1% – 2% depending on the level of advisor.
    • The level depending on the advisors’ stature in the community, but also their level of involvement. 0.5% is a good level to think about starting from, and 2% is extremely rare unless the advisor is directly helping close customer deals or raise money.
  • Do not offer cash.
    • It’s extremely rare that there would be a cash component. If cash is requested from the advisor, walk away, and look for a more sophisticated advisor. For further clairty, if the advisor will be in putting multiple hours per week, they’re not an advisor, they’re a contractor, in which case, cash compensation may be appropriate (see Brad Feld’s Compensation for [Advisory] Board Members).
  • Options vest monthly over 2 year period.
  • Either can terminate upon 30 days written notice.
  • For pre Series A companies, the strike price is set to about 10%-20% that of the last round of financing, or pre-financed companies, the strike price should be about 10% of the estimated value of the company.
  • Advisor agrees to one phone call or in-person meeting per quarter.
    • But no need to dwell on the terms of what they will do for you. Your initial meeting should be representative of what you will get in return, so pay no attention to getting specific on the details here. If it’s not working out, you can both get out of the deal anytime.
  • Generally, you should expect your advisor to follow up on your meeting with thoughts and links and verify that he/she will make the introductions promissed and in general do what they said they would.

Assuming the advisor accepts, entering into an agreement like this will explicitly link your success to theirs, and add their credibility to yours. Vesting them in your company’s success spreads out your champions, and creates more winners for the community at large.

As a startup founder, you’re going on a long arduous journey and you’re going to need a lot of help along the way. Building a strong set of advisors will be one of your first “asks”. These are people that can complement your skillset and fill gaps on your team, and add credibility (sometimes called social proof or traction), especially for first time founders.

If anyone has helped you in a meaningful way, and you have simply not known the proper etiquette, I encourage you to retroactively offer up advisory board options. Let’s make sure that us friendly Canadians are known for our official follow through, as well as our friendliness.


We’ve worked with Contractually to host an Advisory Agreement template that we’ve used for years.

You can sign up for Contractually [Ed. note: Both Boris and Danny are investors in Contracutally] and use it directly with their free plan, or be old-school [Ed. note: at StartupNorth we prefer old skool] and use it manually.

Thanks to Fasken Martineau for making this template available.

Stop stressing about startup competitors

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A couple weeks ago I tossed and turned for hours, unable to sleep because of a TechCrunch article announcing the launch of a potential competitor.  This happens once every month or two, and I’m sure everyone can relate..  This occasion was particularly annoying.  A friend forwarded the techcrunch article to me which I opened while settling into bed for the evening.  An hour of research on my iPhone later, I’m back downstairs coffee in hand, still doing research.

The funny thing is that the logical part of me realizes that startups worrying about other startups is irrational.  But yet I can’t help myself from trying to find chinks in their armour and points of differentiation.

The good news is that I’ve gotten good at waking up the next day and realizing that a startup worrying about another startup competitor is like a 2 year old worrying about another 2 year old making the deans list instead of them.

It’s a war, not a battle, and chances are, both startups will evolve in a way that makes them no longer competitive.  Some will be competing for the deans list.  Some will be competing for the track team, but most will have dropped out.

But still … in my last startup, I can’t tell you how many hours of sleep I lost mulling over Xobni, Dropbox, Threadsy, reMail, ClearContext and others.  With the exception of Dropbox and maybe Xobni, have you heard of these others?  Probably not.  In hindsight, they’re actually really good examples of why you shouldn’t worry that much about startup competitors.

1.  They’re guessing … just like you

We were scared of Xobni, largely because of their uber connected and super alented team.  Specifically Jeff Bonforte.  But everyone’s guessing in Startups.  Everyone.  Including Jeff.  Cofounders backgrounds, vanity metrics, and techcrunch articles mean nothing.  Xobni was iterating like crazy at the same time we were.  In the end, it looks like they might be acquired by Yahoo in a deal that doesn’t represent a huge win for investors.  Everyone’s guessing.

2.  Some pivot

Threadsy was building an all one one messaging system – combining facebook, twitter, email, etc.  We thought it was genius … so much so that we were doing the same thing.  Turns out Threadsy (like us) couldn’t make a business out of it, started building social graph analytics, and eventually were acquired by Facebook.  Most times your competitor won’t be building what they’re currently building in another 6 months.  Most times, you won’t either.

3.  A lot die

Most competitors will die before they hit product market fit.  A lot of times, that has nothing to do with the product and everything to do with cofounder squabbles, life getting in the way, bad investors, and the million and one other things that can go wrong.

4.  Some acquired and stop innovating

We thought reMail and Gabor Cselle were onto something.  They were former google / former YC, so easily intimidated us.  We were building something similar called All My Mail and had visions of making the iPhone’s mail app not suck  Google eventually acquired reMail but didn’t exactly use the technology to innovate and several years later, it’s mailbox that’s innovating the mobile mail experience.

5.  Markets can support multiple players

Dropbox scared us.  Former YC (again), great founding team, great investors.  But our product (and I’d bet a half dozen others) was ahead of theirs.  But we got scared and pivoted away.  In hindsight, that market is massive, able to support more than one player.  Box.net has obviously proven that..

Competition in startups is an interesting thing.  It’s something we can’t help but stress about.  But it’s illogical.  Because in startups, there really are no Goliaths.  We’re all Davids, and the real fight that we have is with convincing users to change their existing habits.  Back in the day, our biggest competitor wasn’t dropbox.  It was email, and the people that used it to share documents, too lazy to change their habits.  That’s the case for most all startups.

A Public Service Announcement

I keep seeing entrepreneurs that complain to me after the fact that they took an investment with bum terms. It comes in many different ways, usually something like, “here’s my cap table what do you think?” or “I have this term sheet what do you think of the terms?”. The terms are usually appalling. But the entrepreneurs asking don’t know this until it is too late, they signed the documents, they spent the money, and now they want advice raising the next round.


Reviewed a term sheet issued by an Ontario incubator today. Was surprised by how awful it was.
@rhh
Rob Hyndman

It looks like I’m not alone. If you can’t figure out this is war. This is information warfare. I forget that I work with a lot of great investors. They look for deals that work for them, their portfolio, for their investments and the potential investments. But I long ago realized that my interests and the interests of existing investors or potential investors were not always in my interest, particularly when things start to go bad. I wish all investors were as honest as Brad Feld with their desired investment rights. But there are bad investors out there. They look to use an information asymmetry to gain greater advantage over uninformed entrepreneurs. It allows them to buy large ownership percentages at reduced rates with additional rights that are not always in the favor of entrepreneurs. They tell entrepreneurs that it is ok, their capital brings additional non-dilutive government capital and the entrepreneur will have the cash to grow. They are trying to maximize their returns by exploiting the information asymmetry.

And I don’t like seeing people being exploited.

Clark Stanley's Snake Oil Linments

It is not the first time that someone has used both simple and sophisticated tactics to take advantage of people. Part of the creation of the Securities Exchange Commission to allow, in this case, the US government to bring civil actions ” against individuals or companies alleged to have committed accounting fraud, provided false information, or engaged in insider trading or other violations of the securities law.” Before the enactment of the commission, consumers were protected by “blue sky” laws, but Investment Bankers Association told its members as early as 1915 that they could “ignore” blue sky laws by making securities offerings across state lines through the mail. Many investors are money grubbing capitalists and that’s the way I like it. But as an entrepreneur the only person looking out for you is you. So rather than  leave yourself ignorant and uninformed it is your responsibility to reduce the information asymmetry. After all, it is your company and…

Knowing is half the battle

The person that is responsible for your success and the success of your company is YOU!

So stop blaming bad investors. Stop blaming lawyers. Stop blaming others. You need to take proactive steps to reduce the information asymmetry

  1. Get educated
  2. Due diligence on your investors
  3. Participate and share

1. Get educated

Fifteen years ago, this information was very difficult to access. The first book that I read about venture capital was High-tech Ventures: The Guide For Entrepreneurial Success that was written in 1991. Part way in to my second venture (I was employee number 6 for the record) John Nesheim released High Tech Start Up, Revised And Updated: The Complete Handbook For Creating Successful New High Tech Companies in 2000. This was my early education about venture capital, high potential growth companies. But most of the lessons came from the school of hard knocks. But things have changed. There are a tonne of resources available to entrepreneurs.  Here is a short list:

This is your business. You are taking outside funding. You need to understand what is happening in the process and why.

2. Due diligence on investors

The investor is doing diligence on you and your company. They are going to talk to your previous investors, your employees, your customers and maybe your prospects. They will take to people in their circle of trust to learn about the market, expected performance metrics, and your reputation. It is incredibly important theyunderstand the risks and accretive milestones before presenting you to their investment committee.

“I will not let my investors screw me” – Scott Edward Walker

You must do your own due diligence on the investor before taking any money. This is going to be a partner in your company. It has often been described as a work marriage. You should need/want to understand more about this person, the firm they work for, and how they treat their existing companies and CEOs. Go for dinner, have a glass of wine, talk about your company, and figure out if you can work with this person for the next few years. Talk to other CEOs that they’ve invested at a similar stage as your company. Talk to the ones that succeeded, to the ones that failed. Talk to the people that the investor sends to you to do diligence. There are so many tools to expose social relationships that didn’t exist: LinkedIn will allow you to send InMails to past CEOs; Clarity allows you to connect with a lot of entrepreneurs and mentors that have a connection with the investor; AngelList is a great tool for discovery but it is also becoming a great way to see investments and help you in your diligence.

the diligence factor was that I knew them, but had never taken money from them. It’s hard to know how people are going to react when they are at risk of losing money because of something you are directly responsible for until you are actually at that point.” – Brandon Watson

3. Participate and share

The above resources are amazing. However, I often learn best from the examples of others. I learned a lot from Mark Organ at Influitive. Mark shared stories about the good and the bad decisions he made in the early days at Eloqua. You learn a lot when you share a hotel room on the road as grown ups.

There are formal meetups like Founders & Funders. But seriously in order to have the trust, you need to get out of the office and the formalities of these events. The conversations come over a poker game. But you’ve got to put yourself out there, be vulnerable, and find people that can teach you something.

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I believe so much in this that I’m renovating my house. I want a big kitchen for family dinner. All of my startups will be getting an invitation to Sunday night dinner. Why? Because I’m betting my family’s future on them, and I want them to be a part of the family.  This includes the ones that I’ve invested in already and any of the companies that I’m looking at investing. I want them to hang out. I want them to help each other. Share metrics and tactics. I want them to tell you that I’m slow to invest. I’m slow even after I’ve said yes (but I hope they understand that it is because sometimes I have to do some consulting work to have investment dollars). (Now I just need the renovations to finish).

Feeling screwed?

I’m starting to think about publishing shitty term sheets, depending on the risks our lawyer identifies, with investor names. I’m not sure public shaming is right model, and my lawyer might tell me it is not. But I think that we need to elevate the conversation we as entrepreneurs are having with each other and our investors.

I’ll be publishing prospective term sheets in the next few days.

Reach out if you want to share.