Perhaps the most important relationship within a start-up business is the adviser relationship. Some entrepreneurs know how to leverage this relationship very well, while others believe that it is a waste of time and energy. I believe that, if properly aligned and matched, the mentor/adviser relationship can elevate a start-up to the next level. From a definition standpoint, I am considering a mentor someone who is not compensated for their time/effort and an adviser as someone who is (either via equity or with payment).
Over the summer, I have had the unique opportunity to mentor a New Haven, CT based entrepreneur on her new start-up. While I have been unofficially advising companies over the past 3 years on a one off basis, the relationship that I struck with this New Haven start-up was more formal in nature. Weekly calls, regular in person meetings, help developing financial models, employee contracts, etc. (It is important to note that I have no financial incentive in the company and have not been paid a *consulting* fee or equity by the founder).
And, over an Indian food lunch yesterday with the start-ups founder, I began to realize that as a VC, the role of a mentor is far more complicated then strictly giving advice. When going into the formal relationship with my NH based start-up, the most important thing that myself and the founder did was to decouple my relationship with LaunchCapital and my relationship as a founder. The reason that we did this was to make sure that I was fully aligned with helping her grow her business and receive the best terms possible for her angel round of financing. Obviously, if I am trying to maximize the terms for the entrepreneur, I am misaligned with LaunchCapital’s financial incentive. Therefore, decoupling was necessary. And, by allocating another resource to advise LaunchCapital as to whether or not to make the investment – independent of my opinions of the start-up – we were able to seamlessly due diligence. While not the perfect solution, it certainly helped.
So, for those entrepreneurs who would like to bring a mentor or adviser into their business, I have a list of 5 necessary things to make the relationship worthwhile:
1) Align all incentives. Make sure that the mentor/adviser is not working with a competing start-up, does not have board membership on another company that could cause a misalignment. If the adviser is from the venture community, I would ask around to see what companies they have been actively engaging, what companies they recently funded.
2) Require regular meetings. A lot of entrepreneurs that I talk with have great advisers and mentors to lean on, but talk with them so infrequently that they are not successful at leveraging their expertise and connections. To maximize the time and relationships that you have, I would schedule bi-weekly calls and monthly in-person meetings with all of you mentors and advisers. And, if a mentor/adviser is not willing to meet that often, then it should be seen as an indicator of how helpful they will be in driving your business forward.
3) Don’t offer equity or payment until the adviser says something. The start-up ecosystem is such that people are willing to do a lot of work and mentoring without compensation. Before you are willing to give up that valuable equity award, make sure that you work towards a non-payment agreement first.
4) Identify your needs from this person before you develop the relationship. Most mentor/adviser relationships fail because the entrepreneur hasn’t identified what the needs are from the person with whom they are talking to (it is also pretty frustrating to be on the other side when this happens). Advisers and mentors can be valuable in more ways then just making introductions. Many times, these people have built teams, businesses, made sales pitches, etc. Use them for everything that you have not done before.
5) Have an end goal. For any informal relationship to work, I believe that their needs to be an end goal that everyone is working towards. It could be anything from raising the angel round to successfully selling your product to a strategic customer. Regardless of what the end goal is for you, make sure that you have decided on final outcome that you want to see from the mentor/adviser relationship. And, once this final outcome is achieved, celebrate and move on. There is often a feeling that these relationships should last for ever. In my opinion, that is not necessary.