Last Friday, I had the opportunity to hang with Stowe Boyd to discuss Web2.0 and his ideas around Advisory Capital.
After coffee at the nearby Starbucks, we cruised over to Notre Dame, where he presented these concepts to the SVASE organization.
Advisory Capital, per the man himself, is basically the idea of investing intellectual property as a means to help companies expedite their idea from concept to BETA without the typical Angel or seed funding associated with development.
According to Stowe, “When the underyling economics of innovation have shifted so drastically — cheaper high-powered servers, open source LAMP stack, accelerated development tools and techniques (AJAX, Ruby, Php, etc.) — more and more companies can bootstrap from pocket change, and be up and running in less time than it takes to secure capital. As a result, going the VC route is increasingly seen as a brake on this class of tech innovation, not an accelerator, at least in the very earliest
The premise is that advisory capitalists (AC’s) have the expertise necessary to help companies avoid “goofs” to expedite time-to-revenue. In exchange for their expert advice, AC’s receive stock plus signficantly discounted consulting fees. Our advice, in a variety of fields, albeit PR, software development, coding, marketing, CRM, etc. is proven and seasoned. It’s invaluable to those who need these services, and it’s up to the expert to determine whether or not the hustle and flow of start-ups is right for them.
Stowe breaks it down this way, “Go without advice from outsiders — seems to happen a lot, but can lead to big goofs. Go with advice from an extended network of informal advisors — friends, family, and others well-known to budding entrepreneurs may have
their interests at heart, but may not understand the market that their innovations will be playing in. Look for knowledgeable angel investors — those well-off individuals who are geared toward making smaller investments in early stage companies can often be knowledgeable about tech in general, but are not necessarily clued into what is happening in the innovators’ space. Seek the advice of leading authorities in the market that the product will be competing — and often, this translates to the leading bloggers, consultants, and authorities writing about the market in question.
He continues, What I think is needed is a fusion of the best of both the venture capital and advisory board models. I call this Advisory Capital.”
Advisory Capital is all about “sweat equity.” But not just anyone can be an AC. You have to bring to the table a tremendous set of value, not just the ability to “advise” on the development of the company and/or its product and service. We’re talking about the value of truly understanding the state of the market and its direction. This is about bringing products to market and already having a proven track record to show for it. Now with that, there should be extra incentive for AC’s to play ball. At the same time, companies need to choose their partners wisely and be willing to find a way to compensate them – because their time could be worth millions to you.
Truth is that in one way or another, many of us have been doing AC, but by other names. Sweat equity has been used to categorize this over the years, but I like the sounds of Advisor Capital. It makes better sense. Although my enthusiasm in the past may have curbed my judgement. Many of my stock options have panned out to be worth no more than a can of Diet Coke, but nonetheless, it’s all about picking our “investmests” bettter. Afterall, I still have to go to work everyday!
For start-ups, it’s all about appreciating AC and not trying to undervalue it’s potential. Even though it’s not cold hard cash money, AC is the ticket to a better night’s sleep. Oh wait, that’s the Sleep Train commercial that’s stuck in my head. Let me try this again, AC is the Golden Gate bridge to VC funding (if necessary) and ultimately visibility and revenue.
Cheers to you Stowe!
More to follow.