How and when to appoint an adviser for your startup

In my experience as a startup lawyer, I have seen how a startup can grow faster with a good advisor onboard. An advisor can serve as a strategic resource to help you guide your business especially when you’re just starting out as an early stage company.

Difference between an advisory board or a formal board

Do take note that they are differences between an advisory board and a formal board. In other words, you may choose whether to have the advisor in an advisory board or a director in a formal board. If the adviser gets appointed as a director in a formal directorship, he or she will also be taking the usual director’s legal responsibilities and duties attached under the companies law. Some of the duties include acting in the best interest of the company and ensuring that the usual statutory duties like filing the necessary audited accounts and other usual legal stuff are done correctly.

Who should you appoint as an adviser?

While there are no prescribed rules on who should be on the board, it may be a good idea to have a diverse mix of people in terms of both experience and knowledge. In Silicon Valley startups are encouraging more diversity policy and that may trickle down to other jurisdictions like Malaysia as well soon.

Also, if your company is in an early stage, my advice is to select a handful of people who can really add value, rather than spending so much time building a large advisory board (usually to entice investors).

Primer on getting an adviser in a startup

Any advisor that you want to onboard needs to sign the necessary paperwork like an advisory appointment letter or a formal advisor agreement (just like how you hire an employee or contractor).

The usual commercial terms in a good appointment include setting out clearly their expected role as an adviser, compensation, and legal relationship should be clearly spelt out. What I meant is if you want the advisor to help you with your MVP you should say clearly in the agreement ‘The advisor will be assisting the company to finalise the MVP up to the completion.’

Additionally, you should specify clearly how you want to remunerate and pay the advisor. Usually, it may be unusual for an early-stage company to pay an advisor (unless the company has already been revenue-generating). A good advisory agreement will have these commercial terms including how the compensation will be paid by the company.

This also includes the board procedures and rules and how and best way to deploy advisers, so that you can spend less time obsessing over the board structures and more time developing your business.

Some final thoughts

There seem to be a never-ending debate in Silicon Valley or perhaps other major startup hubs on whether having an adviser is really going to make a huge difference in terms of your fundraising or business prospects.

I think having a good adviser can help you open doors and even bring in money as well but you need to be really careful and selective when deciding to hire one. I have heard some horror stories about founders that onboarded advisers who later ended up not doing their part of the bargain even when the shares have already been issued!

So get your startup lawyer to draft a good appointment letter between your company and an adviser so that you can avoid the common pitfalls and potential misunderstandings.


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