Hello, everyone. This is Alejandro Cremades, and today we’re going to be talking about
how to create your advisory board or board of directors. Let’s face it: the way that
you surround yourself, the advisors that you bring to the table, the board of directors
are those directors sitting on the board that are helping with guiding the strategy and
the execution of the business. Ultimately, those are going to be critical and part of
the foundational pieces of any successful business. So, with that being said, let’s
get into it. When it comes down to what is a board, you’re
going to have the two different types of boards. You’re going to have the board of directors
on one end, and then you’re going to have the advisory board on the other end. Typically,
the board of directors is comprised of either the founders or the CEO and also the investors
that have invested in the different rounds of financing in that business.
Also, they may have some independent board members, and those are people that are agreed
upon between the investors and the founders or the CEO to bring to the table and guide
the strategy. The board of directors is ultimately accountable for guiding the strategy of the
business, and they have a fiduciary duty to the investors.
On the other end, the advisory board doesn’t have any type of fiduciary duty, it’s basically
providing guidance either to the executive team or to the CEO or to the founders, and
that could be guidance on any type of domain that could be needed for the execution of
the business, for example, marketing, internal processes, and fundraising. So there are different
types of advisors. That’s essentially the main difference.
On the board of directors, there is a voice, and there is a vote. On the advisory board,
there’s no voice, no vote, and no fiduciary duty. There’s just guidance that is provided.
In terms of who chooses the board members, those are ultimately chosen by the executive
team, the founding team, or the founder. When you’re raising the money, you’re going
to be choosing from whom you’re raising the money and those people that are going
to ask for a seat on the board. Then, it depends, obviously, on your stage.
On a seed stage, there are going to be three board seats: the founder and the other two
investors that are coming, or two founders and the investor that is coming in.
On a Series A, which is the next financial cycle, there are going to be about five board
members. That will be two founders: one is the CEO, and one is the non-CEO. Then, the
other two investors that have invested on the seed round and on the Series A, plus an
independent board member. Then as you continue to scale, and you do Series B and up, you’re
going to see the board going all the way up to nine board seats.
In terms of why you want a board of advisers: it’s not critical, and it’s not essential
to have that advisory board, but here’s the thing. You’re not going to know what
to do. This could be a journey that you’re navigating for the first time. Maybe you already
are familiar with the market and with the space, but maybe there are people who can
help you with different things. You’re not going to know that already, so having people
that have already been there and done that, that can provide you that guidance and that
advice so that you can avoid mistakes and you can perform better is totally worth it.
The advisory board is going to depend on who you need and what are the profiles that are
needed with that type of a skill set or expertise, and you need to take a look at the 18-to-24-month
roadmap and understand what is needed in order to achieve certain milestones. Then, depending
on that, you’re going to have a clear understanding as to what are going to be some of those profiles
that you’re going to need to bring on board to help you and to provide that strategic
guidance. When it comes to compensating the advisory
board, the way that you’re compensating them is ultimately with stock. You’re going
to be having them participating on the equity incentive plan, and in this case, you’re
going to give them certain stock options where it depends on milestones or even you provide
a vesting, which could be one year or two years where you’re setting up the expectations
of what you’re going to require from these advisors. If that’s going to be one call
every quarter, one meeting every month, whatever that is, it needs to be agreed upon, and those
advisors are receiving in exchange stock for the advice and the strategic guidance that
they are providing you and the business. As a startup, you want to carefully curate
who you’re bringing in, whether it’s an advisor because they’re going to be associated
with your business and carrying the flag, or a board member in the board of directors
that could destroy their providing the right type of strategic expertise or guidance, or
even fire you as the CEO or the founder of the business. So, you’ve got to be very,
very careful about who you’re bringing in. And I would love to hear from you on the comment
section below who you’re thinking of in terms of advisors, what are the profiles that
you think are going to be helpful. Also, Like this video if you enjoyed it, and don’t
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