In the past year after leaving Next Games, I’ve been advising a dozen gaming companies. Also, I’ve been involved with tens of gaming companies through other types of arrangements. This includes consulting work for a tech hub and its startups. And also, I’ve been helping a few dozen gaming companies in preparing them for meetings with investors, through my online course Pitch Your Games Company.
Without naming any of the companies, here is a breakdown of the companies that I’m advising at the moment.
The key aspects that I believe are important when looking to hire advisors are:
- Expectations of the founders for the advisor’s contribution
- Incentives for the advisor
- The formality of the advisor role
From my experience, most founders don’t have clear expectations for an advisor at the moment when they are asking for someone to come on as an advisor. It’s far from optimal if you are bringing someone on board as an advisor, just to get their name in your pitch deck.
Founders should treat advisors are people who are coming to work for them.
Here’s how I would structure an advisor’s job: Founders should start with a job description. What areas of the company will they work on? What is the format of work, is it advisory board meetings, one-on-one catch-ups once a month, email. Will the advisor be pulled in to help with specific topics from time to time? What is the level of proactivity that is being expected from the advisor? Do they have the expertise to help?
I personally would like to work in this kind of a format:
Areas of Involvement. What are the areas where I’m expected to help and give advice? I can operate on a general level, from company building to fundraising to game development, but the areas should be stated clearly. This way I’ll know what is expected of me.
Format of work. I like to be pulled in. When that hasn’t been stated clearly, I will point it out and give guidance for the founder to structure our work. Make it clear that I don’t want to do the founders / CEOs job, but I can be involved in many situations. I won’t pitch the company to investors, as I believe that this is the CEO’s job.
Advisory boards. I’ve often been advising a founder with several advisors giving them advice. But the advisor meetings are one-on-ones, where different advice is being given to the founder. Later on, it was in-fact the same advice, but the founder had just understood the advice differently. To avoid confusion and misunderstandings, founders should look at setting up monthly advisor meetings, where several advisors meet and can jam together on topics that are beneficial for the company.
Here’s a simple format for an advisory board meeting:
- Have the meeting once a month. Live or video calls both work, depending on where people are and if the coronavirus is still an issue.
- Send out an update email to the advisors, with the fundamental changes, challenges, and progress that the company has made since the previous meeting.
- Start the meeting by pointing out the top concerns or issues that the founders have. These should be topics that every advisor can contribute towards. Fundraising is my favorite. You can get a lot of interesting thoughts from experienced entrepreneurs.
- When the advisors are giving advice, make sure to take notes. When there is confusion, don’t be afraid to jump in and direct the meeting.
If you only have one advisor, you should still follow a similar meeting process. Keep your advisors updated on the company and highlight your concerns and issues, to guide them to the right area of advice-giving.
Startup advisors are often entrepreneurs themselves and have worked with advisors of their own. They know that a long-term incentive like equity in the company is the best possible option to create sustained commitment. That’s why these advisors should be happy with a salary in shares that vests over time.
Some might wonder if it makes sense to give out shares, or should they be stock options. When a company is still an idea, it makes sense to give out shares to advisors in the new company, as there yet won’t be any tax implications. Later on, once the company as raised funding, they need to give out stock options to the advisors.
How much equity is good enough? The Founders Institute suggests a range between 0.2% to 1%. The amount of ownership depends on a couple of factors.
Company stage The company will start at the idea stage, possibly with a founding team in place. Then they move to the seed stage, and eventually to Series A stage. At each stage, the company becomes more likely to succeed, and the valuation of the company goes up. At the same time, advisors should get a smaller chunk of shares, because their efforts won’t be as critical to warrant a more considerable upside, compared to the advisor who came onboard at the idea stage.
Advisor Experience Level When you are looking to hire an advisor, you should think about their experience level and how specifically this person’s involvement will increase the likelihood of success. The Founders Institute breaks down the experience level as Standard, Strategic, and Expert.
Let’s look at a few examples here on having someone as an advisor, who’s
- Expert. Previously founded a games company, raised several funding rounds, and had a successful exit, would be categorized as an expert.
- Strategic. Perhaps you are looking to bring on a user acquisition advisor, who’s previously worked in gaming companies, managing user acquisition teams.
- Standard. This person is well connected to investors or publishers in gaming and knows how to pitch to them. You are paying this kind of an advisor for their network and added value. But since the involvement is project-based, the advisor won’t be contributing as much after the deal.
I’ve been advising a dozen companies now in the last year, and only one company has so far sent me an agreement on the advisory role, without me asking for one.
There are a few ways to deal with this, and I’ll point out the one that I like.
Advisor agreement. It’s not common that startups create advisor agreements. But I think they should, to avoid issues later. This agreement would state the role of the advisor, what is expected, the incentives, and confidentiality clauses. Other details should also be covered. More on them below.
Vesting. Founders should make sure that advisors are available when needed. One of the best ways to do that is to create a vesting schedule for the shares that the advisor is getting. The stocks or options should have a vesting schedule. The typical time for advisors to be vesting is at 24 months with a three-month cliff.
Termination. It often is the case that an advisor won’t have time to help the company or that the company has passed the point where the advisor isn’t needed or isn’t helpful anymore. It’s common practice that advisor agreements can be terminated without any notice or reason. But for future relationships, founders should weigh in on the benefits of still keeping the advisor on board, at least until they’ve vested their entire allocation.
Final words on formality: it can be an informal relationship, and the advisor can just be a friend to the company, but even in these cases, the founder needs to think about future relationships and time spent. It’s common courtesy to reward helpful people down the line, as they will then return the favor.
Here’s the link to download the Founders Institute’s advisor agreement template in Word Doc format.
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