Formation

How to Use an Advisory Board

Advisory boards are powerful tools used by companies at all stages of development.  Advisory boards are generally comprised of business leaders, scientists, professionals or other persons of influence.  Advisory boards can have general duties, such as providing critical advice and introductions, or they can be more issue-focused, such as advising on specific industry sectors or particular products, transactions or other critical strategic decisions.

Although advisors do not serve an official legal or statutory function in companies, and are not employees or official agents, companies should neither treat such arrangements informally nor fail to fully exploit the benefits of advisory board.  Early stage companies in particular should be laser focused on taking full advantage of their advisory boards. Here are a few ways startups can use an advisory board:

1. Develop and Refine the Company’s Business Plan. Take advantage of the industry expertise and general business experience on your advisory board to have them vet your business plan, executive summary and other strategy documents.  Then keep with in the loop each time you refine your plan so they can help make adjustments and point out issues you may not have considered.

2. Recruit Key Members of the Team. Let your advisory board know what holes you have in your management team, what consultants you need and even your lower level job postings. Your advisors know your industry well and can refer the best employees, consultants and other service providers.

3. Introductions to Funding Sources.  The more you involve your advisors in your business, the more invested they will feel in your success and the more they will become your advocates. Your advisors are (hopefully!) credible industry experts, and therefore are likely to know the most probable sources of funding for your business, from angels to venture capitalists. A potential investment referred by a trusted advisor is much more likely to receive serious scrutiny from a venture capitalist than a cold call.

4. Insight into Competitors. Ask your advisors what they know about the plans and strategies of your known competitors.  Also have them help you identify what companies could become competitors, and whether other startups have formed in your segment.

5. Introductions to Business Partners.  If a strategic alliance or partnership with a larger company in your industry could help you, let your advisors guide you on how to structure that relationship and whom to contact to get the other party’s attention.

Dealing with “Dead Equity”

“Dead equity” refers to company stock owned by individuals and entities no longer contributing to the company. In general, there are two types of dead equity seen on emerging company cap tables: Departed founders/employees. A co-founder or early employee leaves a company or no longer significantly contributes […]

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When Should I Form a Legal Entity?

As startup lawyers, we often receive inquiries from passionate entrepreneurs and founders seeking guidance on when they should consider taking their side projects to the next step by forming a legal entity. Forming a company is a “crossing the Rubicon” moment for any startup. It’s an essential step […]