Demystifying the Adviser's Role in Startups

In the realm of entrepreneurship, there is a widespread belief that favors securing angel investors over advisers, largely due to the capital and market credibility these investors bring. This perspective, however, often overlooks the nuanced and critical role advisers play in startup growth and strategy. Our experience at Glitzi with Joao Rodrigues, former co-founder and COO of Singu (a Brazilian counterpart of Glitzi recently sold to Natura {NYSE: NTCO}), perfectly encapsulates this overlooked value, highlighting how expert advisers can significantly influence a startup’s trajectory.

At Glitzi, we specialize in providing at-home wellness and beauty services across Latin America and supporting beauty professionals to become successful solo entrepreneurs by providing them with the necessary infrastructure. Initially, we adhered to the startup norm of prioritizing angel investors, likely turning down valuable advisers in the process. This approach shifted when we engaged with Joao. His experience in operating a business analogous to Glitzi in Brazil was a goldmine of relevant, actionable insights. Joao’s advice, which included dynamic pricing, a dynamic commission system, and an incentive program for Glitzi’s professionals, directly influenced our operational efficiencies and growth. His involvement is a prime example of the impact domain expert advisers can have, demonstrating the importance of assessing the potential impact an adviser could have on your company before deciding against an advisory relationship solely because they do not invest.

Y Combinator categorizes startup advisers into three main groups: general business advisers, domain experts, and technical/scientific advisers, each offering distinct value:

General business advisers: Often seasoned entrepreneurs or executives, they provide broad business advice. Typically, their insights are more general, and such advisers may be more valuable when they also contribute as angel investors.
Domain expert advisers: Specialists like Joao bring invaluable insights directly applicable to a startup's specific challenges. Their deep, sector-specific knowledge and hands-on experience are usually more impactful than the strategic advice often provided by angel investors. These advisers are valuable irrespective of their status as angel investors.
Technical/scientific advisers: Essential for startups in specialized fields like biotech or high-tech, these advisers offer in-depth technical knowledge crucial for guiding product development and innovation. It is better to engage these advisers in any capacity than not at all.

The decision to engage an adviser or an angel investor should be based on the type of adviser and the startup’s specific needs. In our case at Glitzi, Joao’s role as a domain expert adviser was invaluable, and we would have made a significant error if we had only accepted him as an angel investor. Now, we are in discussions with him for a potential investment, which might not have materialized if we had not started an advisory relationship.

For founders looking to engage with advisers, it's important to approach this relationship with clarity and purpose. Begin by identifying the specific areas where your startup needs guidance. Seek advisers who possess not only the requisite expertise but also relevant experience in those areas. Ensuring a cultural and strategic fit with your team is crucial. The right adviser should challenge your ideas and strategies, propelling your startup toward growth and innovation.

Once you select your adviser, structuring the relationship with clear expectations and formal agreements ensures that the collaboration is mutually beneficial. At Glitzi, we implemented best practices in our engagement with advisers, particularly with Joao Rodrigues. These included establishing vesting periods (typically 12-24 months) without a cliff to ensure long-term commitment, setting clear expectations for advisers' time commitments, organizing structured meetings to address strategic and operational challenges efficiently, and formalizing the terms in an Advisory Agreement.

During our strategy sessions, Joao guided us to focus on the Top 5 growth strategies that had been most effective for Singu, allowing us to bypass numerous experimental phases. The main challenge was the “tropicalization” of these strategies – adapting them to suit the unique contexts of the Mexican market.

The equity allocated to advisers should reflect their level of expertise and the startup's stage. According to Carta's 2022 data, the median adviser grant for pre-seed companies was 0.24% of company shares, with 70% of grants being less than 0.5% of the company. Startups, particularly in their early stages, benefit greatly from advisers due to their lean operations and limited internal resources. Advisers provide not only expertise and connections but also mentorship. They offer objective perspectives on startup ideas and strategies, and well-connected advisers can facilitate introductions to potential investors, hires, and partners.

Our journey with Joao Rodrigues at Glitzi underlines the indispensable role of advisers in the ecosystem of a startup. While angel investors bring in crucial capital, the strategic guidance, industry-specific expertise, and mentorship provided by advisers like Joao are equally vital for sustainable growth and innovation. This realization calls for a more balanced approach in the startup community, recognizing that the right adviser can offer insights and support that complement and sometimes even surpass the benefits of angel investment. By carefully selecting advisers and structuring these relationships thoughtfully, startups like Glitzi can harness the full potential of both financial and intellectual capital, paving the way for success in the competitive business landscape.