Company Advisors? Asset or Liability? Depends if they are In or Out.

Last week, I had the pleasure to participate and speak at the annual South Florida FundingPost event at the University of Miami in Florida. A question was posed from an attendee where he referred to his Board of Advisors as strong assets. The Board he described was impressive. A Who's Who of industry players. With that Board he was trying to validate that his emerging company had "legs" beyond his competitors. I listened to his pitch on his company and yes it was interesting, I dont know about "game changing" but yes interesting.

Then I posed the following question, " Your company sounds interesting and compelling". He replied "Yes and thank you". "Your Board of Advisors is impressive". His reply, "Thanks". Then the tough question, "How many of your Board of Advisors are investors in your company? They seem committed and seem to have the means to assist you in launching", I asked.

His reply, "None, but they are contributing a lot of time to the project for no pay".

When I heard that, my interest immediately shut off. If such a good company that was going to skyrocket. If such a great company, that it would exit with great returns. Then why are the Advisors investing? That is very telling. If they thought such a great investment that they were seeking other peoples capital why wouldn't they invest if they believed in the success?

My feeling is that entrepreneurs should be careful about recruiting Boards of Advisors or Directors of noteworthy individuals who dont invest. Especially if they are high networth cashed out successful entrepreneurs. Its a telling sign that they are not confident enough to put "skin in the game" especially if these are individuals of means. To me it is a red flag.

Yes, as a start up or growth entrepreneur it is great to have a "Who's Who" on your Advisory Board or Board or Directors, however, when inviting them to participate solicit some investment level even if small. A $5,000 or $10,000 investment from a wealthy individual may not seem alot but it is still a vacation (albeit modest) for a wealthy individual. But it speaks volumes of confidence that they are willing to "put their money where their mouth is".

I always ask this question of investment. If nothing at all it certainly leads to an interesting conversation.

Now there are exceptions to the rule. For example, individuals from Academia who are thought leaders in a field may not have the means. Individuals from industry trade organizations may be in similar situation. Government or regulated industry persons may be precluded by law. But define clearly what they are contributing to their respective boards. (In one of my portfolio companies, the academia board member, an expert in the field, is a small investor in the company but yes it says alot).

All in all, Boards of Advisors and Directors can bring a lot of value, creative ideas, contacts, vision and support. But it speaks volumes, loud volumes, when they couple that with any size of meaningful investment dollars in a company.