Last night gave yet another chance to refine my approach to working with young and passionate entrepreneurs. I had an unfortunate and preventable misunderstanding with a young founder with a great idea whom I began a relationship with as a mentor/mentee close to 12 months ago. The causality of this misunderstanding that temporarily got quite heated was the same as most misunderstandings with its genesis in a un-communicated misalignment of expectations and understandings as the relationship and business evolved from nothing but a raw idea with some early positive feedback from its future user group on Facebook into a full-fledged business model and extremely well built and completely scalable MVP that goes live in a matter of days. Without boring you with the minutia of this specific case further the root of the problem in this scenario has a lot to do with what I see often as confusion in the marketplace for young or first time founders as it relates to the distinctions and similarities and compensation norms for three key roles that are The Mentor, The Board Advisor, and The Board Director. Sometimes despite being extremely diligent and well organized, when you work with young founders……
I hope to lay this out as a simple yet clear source of comparison so that not only my future and multitude of similar relationships can have it as a reference, but that other mentors, advisors, and directors within the startup community can use it themselves to cause less confusion with their founder counterparts and reduce the chance that valuable bridges are burned unintentionally by avoidable discrepancies and different levels of experience and pattern recognition.
The Mentor:
Relationship-Committed and Generous with advise, experience, and assistance or introductions, but informal with no formal compensation or contract typically for any specific amounts of time, regularly scheduled meetings or deliverables. Most prolific and valuable mentors don’t purposefully use their relationship as bait to hook into a sales strategy or paid engagement with their mentees for consulting services. This doesn’t prevent transactional relationships from occuring or evolving from the initial mentor/mentee dynamic, it merely means that the intention of the initial relationship is not transactional or with an agenda more powerful than the one to give, help, and support the innovator and their business to get on some level track.
Value- To the entrepreneur a wide variety of mentors is a good asset to acquire or put yourself in the way of early and often because although you may get several conflicting opinions on the same topics or question (i.e. mentor whiplash) it deepens your network, allows for a great experience in critical thinking, evaluation, and decision making, and builds confidence in listening but also trusting your gut and living with the outcomes. The Value of being a mentor is to truly give back to your fellow entrepreneurs in a spirit of pure generosity and because you have walked in shoes they have not and can lend them insights into the road ahead, the lifestyle, the potholes to avoid, and be a model of resilience they can latch onto or reach out to when times are tough and they feel alone.
Time Horizon- Completely organic and unpredictable. Some mentor/mentee relationships begin and end over a 20 minute session during a Startup Week and others can go off and on informally and form into meaningful professional and personal peer-to-peer relationships.
Compensation-Never
*(In some cases like with Founder’s Institute the mentor is part of a pool of mentors in some accelerators that carve up a piece of their equity that is part of their accelerator contract with selected incubating companies and award a portion of it to the mentors in the form of bulk portfolio or cohort warrants)
The Board Advisor:
Relationship-More Formal/but not legally authorized to bind the corporation. As companies move through the lean canvas or business model design from idea to MVP they will typically begin to formalize several things including their entity formation, capital access strategy and issue founders stock and set up the initial bylaws to prepare for full scale operations and initial sales or capital raising activity. It is at this point that certain domain experts (many of whom may have mentored the founder or company earlier or have been introduced by a mentor to the company because of a key need that surfaced), become valuable and needed to advance towards an established early milestone. At the same time it is also common that formalizing with legal authority outside Directors on the company’s board is pre-mature for one or both parties. This is where the advisory role is a key asset to attract and formalize to a specific degree with regards to what type of help, access, time commitment, and introductions are requested and what type of compensation (typically small portions of equity depending on the stage of the business) is offered in exchange. For a highly used and fair and quick template agreement I suggest something like the *FAST agreement by Founders Institute as a great starting point for companies and potential advisors to work from and use to save time, align expectations, and avoid confusion.
*Back to my story of last night here is my lesson learned from the failure this go around despite implementing this strategy. The founder received printed and digital docs of this FAST agreement and we discussed needing to customize it and agree on where in the bucket my expertise fell regarding reasonable equity grant to continue, BUT what I never knew until after the blowup is despite nodding and agreeing to finalize and discuss, the founder never actually even read the 4 pages to have any idea of what the FAST agreement actually was. This is where the disconnect occurred. I assumed that the multiple touch points and discussions had us operating from a clear sense of the terms and language and matrices within it and that we were just looking for the time to sit down and nail down the final language and amounts to execute. MORAL OF THE STORY: DON’T Assume and don’t engage as a Board Advisor or promote someone on your slidedeck as such if you are the founder until you have sat down with something like this talked through why this evolution of the relationship makes sense, what the scope of work, perceived value and equity grant and any vesting schedule will be.
Value-The value of the Board Advisor can be tremendous as you move your business to a more formal and operational entity. It can round out holes in the founding team from both experience and technical expertise as well as help ‘recruit’ key resources, players, and potential capital providers to conversations around your opportunity. All of this and more while at the same time keeping your legal governance close to the vest until the time for establishing true CEO compensation and term sheet evaluation or shareholder value metrics and management oversight comes.
Click the hyperlink for a really great article on the value of Advisory Boards in the IVEY Business Journal
Time Horizon-More flexible and less time consuming than a Board of Directors and can be fluid in its duration where it exists ongoingly in parallel to the Board of Directors for specific outside value or as a stairstep to a formal board run company.
Compensation- Typical in the form of equity slivers
The Board Director:
Relationship-A formal officer of the corporation with binding and fiduciary responsibility to the shareholders of the company and the ability to hire/fire the CEO of the company and approve or deny major capital raises, acquisitions and key hires.
Value- As your company moves into commercialization the value of an outside and inside Board of Directors formalizes many of the necessary management processes by which you will build enterprise value, establish and measure governance and performance for the investors. It also serves as an important way to establish and speed up the relationships and key account activity or capital raising efforts as you select Board members who have deep and credible relationships that become available to the company more formally as your move ahead.
Time Horizon-Outside Directors in private companies are typically not needed in the early stage but will begin to show up as institutional or sophisticated capital providers invest into the enterprise and wish to assign a representative who aligns with their interests as well a mutually agreed upon outsider that can serve as an arms length viewpoint with full focus on nothing but what is best for the enterprise overall.
Compensation-Always and depending on stage can come in several forms that typically combine equity with vesting schedules and cash or reimbursements for reasonable related expenses and time. For a great summary from my friend Brad Feld (so that I am not reinventing a wheel he has turned for a decade longer than I have) please click to read his thoughts here!
Ultimately, relationships are made up of millions of points of communication in verbal, written, and subject to the interpretation and filter of each listener. The entrepreneurial journey of taking nothing into something and something into something BIG requires a constant evolution and lots of inputs and people. Hopefully this will allow for a better discussion and clarity between those helping and those needing help, so that frustration and or disappointment can be mitigated more frequently.
~CJS
