Quora Answer: Is It Signaling Risk to Have an Advisor Who Has Not Invested in Your Startup?

The following is my answer to a Quora question: “Is it considered a signaling risk to VCs to have an advisor who has not invested in your startup?” 

No, not really.  Not every advisor is an investor, nor would we expect them to be.  There are many reasons why an advisor is not an investor, and not every startup wants an advisor to invest.  An advisor’s primary role is exactly that – as an advisor. 

There is a signaling risk if a startup has the wrong advisor, someone who has an inclement reputation, or a history with the potential investor.  In our line of work, we do not always get along, and there are people who cannot work with each other.  It is a signaling risk if the advisor seems to be in control of the company and the management team.  It either means problems for equity partners down the road, or that the management team is simply not capable enough.  We do not invest in ideas or companies.  We invest in the people with the ideas.  The company is merely a vehicle.  If those people are not strong characters, that is a major signaling risk.