Difference between board of directors and advisory board

One of the best things a startup can do is select an advisory board.

Before we dive into the nitty-gritty of how to choose an advisory board, we need to make one thing clear. An advisory board is not the same as a board of directors.

There are a few key differences between an advisory board and a board of directors. An advisory board is different because they have no legal or fiduciary responsibilities. However, a board of directors is held liable for advice given and has voting power to make changes within the organization. As a result, the compensation for members of a board of directors is typically much higher.

Watch Felena Hanson share about the selection process for Hera Hub’s advisory board.

Important questions to ask BEFORE you choose an advisory board.

What experience do you need?

Advisory boards are made up of hand-selected members. For instance, the member may have a personal relationship with the business owner. Advisory members are typically selected for a particular skill set or expertise that would be valuable for the startup company.

  • Ask close friends, family or colleagues that you may already know and have a relationship with.
  • Choose people who are committed to and passionate about supporting you and your business.
  • Select individuals who have expertise in an area you may lack strength. (Ex. operations, taxes, accounting or legal)

What will your advisory board members do?

Clearly outline what will be expected. Will you be conducting quarterly meetings? Do you want in-person strategy sessions? What frequency will they be expected to provide strategic advice? Will they be involved in projects and at what level?

Decide how they will be compensated?

Compensating your advisors is a great way to ensure their participation. According to FundingSage, “Stock options between 0.1% and 1.0% of company equity are typical for startups in the Concept and Seed stages of development.”

Work with an attorney to put together a contract that articulates what they are being asked to contribute and what they will get in return. Consider incorporating a vestige clause so if someone disappears they can’t circle back to try and cash in their shares.

Above all, choosing an advisory board is a great idea for growing a business and should be done with intention.

Here are a few extra resources that may help.

Learn more about Hera Hub’s advisory board.