This video discusses the differences between a board of directors and an advisory board, outlining their respective compositions, duties, and roles in guiding a business strategy.
What this video covers
When it comes down to what is a board, you’re going to have the two different types of boards. You’re going to have the board of directors on one end, and then you’re going to have the advisory board on the other end. Typically, the board of directors is comprised of either the founders or the CEO and also the investors that have invested in the different rounds of financing in that business.
Also, they may have some independent board members, and those are people that are agreed upon between the investors and the founders or the CEO to bring to the table and guide the strategy. The board of directors is ultimately accountable for guiding the strategy of the business, and they have a fiduciary duty to the investors.
On the other end, the advisory board doesn’t have any type of fiduciary duty, it’s basically providing guidance either to the executive team or to the CEO or to the founders, and that could be guidance on any type of domain that could be needed for the execution of the business, for example, marketing, internal processes, and fundraising. So there are different types of advisors.
That’s essentially the main difference. On the board of directors, there is a voice, and there is a vote. On the advisory board, there’s no voice, no vote, and no fiduciary duty. There’s just guidance that is provided.
In terms of who chooses the board members, those are ultimately chosen by the executive team, the founding team, or the founder. When you’re raising the money, you’re going to be choosing from whom you’re raising the money and those people that are going to ask for a seat on the board.
Then, it depends, obviously, on your stage. On a seed stage, there are going to be three board seats: the founder and the other two investors that are coming, or two founders and the investor that is coming in.
On a Series A, which is the next financial cycle, there are going to be about five board members. That will be two founders: one is the CEO, and one is the non-CEO. Then, the other two investors that have invested on the seed round and on the Series A, plus an independent board member. Then as you continue to scale, and you do Series B and up, you’re going to see the board going all the way up to nine board seats.
In terms of why you want a board of advisers: it’s not critical, and it’s not essential to have that advisory board, but here’s the thing. You’re not going to know what to do. This could be a journey that you’re navigating for the first time. Maybe you already are familiar with the market and with the space, but maybe there are people who can help you with different things. You’re not going to know that already, so having people that have already been there and done that, that can provide you that guidance and that advice so that you can avoid mistakes and you can perform better is totally worth it.
The advisory board is going to depend on who you need and what are the profiles that are needed with that type of a skill set or expertise, and you need to take a look at the 18-to-24-month roadmap and understand what is needed in order to achieve certain milestones.
As a startup, you want to carefully curate who you’re bringing in, whether it’s an advisor because they’re going to be associated with your business and carrying the flag, or a board member in the board of directors that could destroy their providing the right type of strategic expertise or guidance, or even fire you as the CEO or the founder of the business. So, you’ve got to be very, very careful about who you’re bringing in.
