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Alex Gawley

🤝 Growth catalysts: Selecting, engaging, and compensating advisors 

Most of the early-stage startups we talk to need a little outside help as they start to build a company around their breakthrough innovation. One option to accelerate that development early on is to bring in some highly focussed advisors who bring ready-made expertise, networks, and strategic guidance to complement that of the small, resource-constrained teams. The right advisor can provide critical insights or support that shapes the company’s strategic direction, helps avoid costly mistakes, and opens doors to investors, partners, and customers.


As with any hiring or partnership decision, it’s really important to find the right people and set the parameters of the relationship clearly and fairly. Failure to do so can waste time for both parties as well as scarce startup resources. So, what are some things to think about when deciding to work with an advisor?


Finding and choosing advisors


Before you have a conversation with anyone about advising your company, whether initiated by you or them, try to write down what you think you need.


Be as specific as you can - not just “fundraising help” but “introductions to relevant investors in Germany” or “help improving our pitch when talking to VCs”. This will enable you to not just look for the right type of advisor, but also to find one that can really help you where you need it.


Advisors come in lots of different flavours. Some common ones are:


  1. Technical Advisors: Often experts in the scientific field relevant to your company, such as chemistry, engineering, or biology, These advisors help you manage your technical challenges from building a lab to hiring great scientists and validating the core technology. They will also often understand how to scale technologies from the lab to the real world.


  2. Industry Advisors: These advisors have deep knowledge of your target market, including emerging trends, market needs, and competitive landscapes. They may have worked for an incumbent and will likely have great relationships with potential buyers or partners.


  3. Operational Advisors: These advisors focus on scaling operations, improving processes, and building effective teams. They ensure that as the company grows, it does so efficiently and sustainably.


  4. Fundraising and Financial Advisors: Securing capital is often the most pressing challenge for early-stage startups. Fundraising advisors guide startups through the fundraising process, helping them pitch to investors, structure deals, and manage financial projections.


Obviously advisors can do a lot more than this, and really every relationship is different. But if you start out with what you need and what they can offer, it will be pretty clear if there is a strong fit.


That’s all well and good, but where do you find advisors? Well, the first place to look is your own network. If you already know and get along with someone who has the right skills and connections then that’s ideal. When looking outside your network, look for recommendations or trusted sources. Go to industry events, spend time understanding which universities research your technical areas and build relationships there. Seek out former successful entrepreneurs at pitch events.


The key is to spend some significant time and energy building a relationship before you both commit to a formal role.


Working Effectively with Advisors


Working effectively with advisors requires clear communication, defined roles, and a structured approach. Here are some best practices for engaging advisors:


  1. Define clear objectives: Start by identifying the specific areas where the advisor’s expertise is needed. Outline clear objectives and expectations for their role, including what success looks like for the engagement.


  2. Set up formal check-ins: Establish a cadence for communication that aligns with the advisor’s level of involvement, whether it’s monthly check-ins, quarterly strategy sessions, or more frequent ad-hoc meetings for urgent matters.


  3. Communicate informally too: Frequently update advisors on the company’s progress. This way they are armed with up to date information whenever they see an opportunity to help you.


  4. Be proactive: Make sure to actively ask for your advisor's help whenever the need arises. If they are a technical or operational advisor, reach out to them when you are stuck. If they are an industry or fundraising advisor encourage them to make introductions to potential investors, partners, or customers.


  5. Keep it mutually beneficial: Advisors are motivated by more than just money—they want to be part of something impactful. Make sure they meet the team and spend time in your workspace.  Celebrate milestones or commiserate losses with them.


You should have formal agreements with your advisors, clearly outlining the scope of the relationship, expected time contributions, confidentiality and remuneration. The US-based FAST is a good place to start as are the docs put together by Seed Legals in the UK.


Compensating advisors


As we said above, advisors are often motivated by more than just money. In fact, according to a recent survey by Seed Legals in the UK, around one-third of advisors receive no cash or equity compensation for their work. Working with you and your team, helping to solve a really difficult challenge and being associated with your work may be sufficient for many to devote some of their time.


Of course, as the amount of time and energy that an advisor provides increases, it is likely that they will want some monetary benefit as well. Most commonly this is in advisor shares or stock options. That way, the advisor receives a potentially large benefit in the case of the company’s success without being a drain on your already tight cash flow. A small number of advisors prefer (and may deserve) cash compensation, but it’s rare and as cash is one of your most scarce resources we don’t recommend it.


So, how much equity is fair? Well, that depends on the individual situation and the value that you feel you are getting. Data from the US and UK suggests that advisor grants are usually around 0.25-1%. In particular, only if the advisor is working more than 24 days a year (that’s two full working days a month and unusual for most advisors) should you consider more than 1%. The FAST agreement has a nice table of defaults that is pretty well accepted in the US and likely to become more of a global standard too. One key thing to remember is that if your advisor turns out to add enormously more value than expected you can always grant them more equity. Taking equity away in the case of a failed relationship is much harder and often impossible.


Just like founder equity, advisor shares should vest (normally over 4 years with a one year cliff). This keeps everyone incentivised to get the most out of the relationship over time and ensures that in the case the advisor can no longer work with (perhaps because of a conflict) there is no overhang to the company.


Conclusion


Advisors are essential partners for early-stage climate tech startups, offering expertise, guidance, and connections that can significantly impact the company’s trajectory. By strategically engaging advisors, defining clear roles, and thoughtfully compensating them—primarily through equity—you can maximise the value advisors bring and build great long term relationships for your company.

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