It’s well known in the startup industry that early-stage entrepreneurs often struggle with choosing the right model to engage expert advisors. Finding the right fit is crucial for growth, and a few common models are widely used.
20+ year of published entrepreneurship research and surveys reveals that participating in structured programmes of tech accelerators or incubators can be most effective way for founders to connect to potential mentors.
But outside of them, finding the right engagement model may not be straightforward.
Here is a brief summary of the key advisor engagement models, highlighting their trade-offs:
1. Informal Mentorship
- 👍 Pros: Zero costs, flexible, and can be used at any stage with no contracts.
- 👎 Cons: Often offers no legal IP protection or NDA. Availability & effort are not guaranteed, and it’s difficult to incentivize the mentor.
2. Equity-Based Advisory
- 👍 Pros: This is an industry standard model (like fi.co/FAST), which is cash-free with equity typically 0.25-1.0%. It provides an ongoing partnership & aligned incentives and good legal protection.
- 👎 Cons: Requires legal agreements early-on and is a longer-term commitment. It’s also more difficult to unwind.
3. Retainer-Based Advisory
- 👍 Pros: Features a simple contract for a fixed monthly fee and allows for mutually agreed support, duration, and scope. It offers good legal protection.
- 👎 Cons: Requires cash (though deferred payment is possible). Incentives are not necessarily aligned, and the effort expected is often not available.
4. Fractional Roles
- 👍 Pros: This involves hiring a part-time executive to help bootstrap. It’s typically contract-based, has low liabilities, and offers strong legal protection.
- 👎 Cons: The cost can be high (daily rates). It’s a core role without maximum commitment, and there is a risk of losing key knowledge upon the advisor’s departure.
Choosing the best advisory model requires weighing these pros and cons against your specific needs, stage, resources, and legal requirements.
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