Situation: An early-stage company has a key advisor who is helping them to build a 3-5 year vision and plan. The company can’t afford to pay the advisor full-time but he’s interested in working one day a week or becoming a Board member. Should they give him equity as a Board member and under what conditions?
Advice from the CEOs:
- Adding Board members increases complexity, especially when it comes to big decisions. Once an early stage company transitions from their start-up Board to a more formal Board with non-founder members, particularly when a significant number of the new members have strong corporate experience, the Board will take on a certain level of independence in corporate and compensation decisions. Be aware of this, as a larger more independent Board may make decisions that the founders would not make.
- It is not irregular for Board Members to receive equity or options. If you want to grant options, you must undertake an initial company valuation exercise, followed by annual valuations. It is common to grant options with 4 year vesting on a monthly basis. Vested shares can be purchased at Day 0 price, with some period to exercise options following departure from company.
- Seek an expert in Board operation and compensation. There are a number of advisors with deep experience in this area who can advise the company on standard practices for Board operation and compensation.
- If the company decides that they are not yet ready for an expanded Board of Directors, another alternative is a Board of Advisors.