Service Provider, Advisor, Board Member, Investor

by Wayne Willis on February 13, 2012

It sometimes gets confusing to work with a company and  label the role you are in.  There are important distinctions and expectations:

Investor - This one should be clear and easily determined.  "You pays your money and you takes your chances."   Especially as an angel investor, you don't have "control" in the form of board involvement or significant equity rights.  So what involvement or time is involved?

Many investments are done with the expectation that the investor can be "value added" ... to help with introductions, advice or other relationship resources.   Sometimes the entrepreneur wants more than a little help ... but doesn't want to pay for it.   Do you let them fail?  No, that would be stupid.  But where should the boundary be on time spent or relationship capital contributed?

Conversely, sometimes the founder doesn't give investors any updates and doesn't ask for any input.   If he or she knows what to do, fine; but if they are hiding poor results, well, that adds risk and reduces the value of the investment more than necessary.

Director / Board Member -- again, the label is clearer than the boundaries around it, especially in an early-stage company.   Quarterly meetings or monthly calls, committee meetings and so forth are included in the core job description.  Often, however, you are called upon to do more.   Sometimes you help the CEO with a difficult negotiation.  Sometimes you help source new financing or help persuade a rock start employee to join.  And sometimes you need to be more active if the company needs a restart, either financially or managerially.

Advisor -- I've been in situations where you get called at least once a month ... or frequently sent drafts of key business documents to comment on.    And sometimes you don't hear anything for months.  Typically, though, the boundaries around "Advisor" are pretty clear, and it's easy to draw the line between advising the CEO on what to do and you doing it yourself.

Service Provider --  this is just a fancy term for an independent contractor (or employee) delivering some service to the Company.   If you hang your shingle out as some sort of service professional -- a marketing guru, an executive recruiter, a part-time CFO, etc. -- then that's clear.  You and the Company negotiate a services contract at arms length.   But what if you are already in another role with the Company, e.g., as Investor, Board Member, or Advisor?   Then it gets trickier.   Basically, I require the board as a whole (not the CEO) to ask me to provide services (if needed) if I am a Director or significant Investor.   Otherwise, the CEO can manage the contracts.

It can be awkward to step into a service provider role when you began the relationship as Director, Investor or Advisor.  But, so long as the deal is fair to all parties, fully disclosed and ratified by independent parties, it should work out fine.

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