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To attract strategic board members how much equity do you allocate & what commitment do you ask for?

I have someone that I am trying to attract to my board that would lend significant credibility and experience and help me attract the kind of executive team that I need to get the company to the next level. I am willing to give 1% equity to him and think that he would only need to devote 1 hour per month to me and a 4 hour meeting in person once a year. Does this sound reasonable? This is the Board of Directors not an advisory board role.

24 Replies

Joe Albano, PhD
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Joe Albano, PhD Advisor
Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.
I've posted several times about issues of compensation vs. equity. Let me try an analogy this time.

I need to get a new roof on my house. I really don't have the money to pay someone to do it. Do you think that offering 1% of the equity in my house sounds reasonable? This is not a labor only deal, they would have to provide all of the supplies as well as any permits, liability insurance, and other items that I may not even know about.
Chicke Fitzgerald
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Chicke Fitzgerald Entrepreneur • Advisor
Game Changing Strategist, Advisor & Technologist | Board Candidate | Zigging where others Zag
Joe, thanks for your input. This particular board member doesn't need money and frankly his participation wouldn't be swayed by that. He would be in it for the long haul - growth and vision and building a company worth hundreds of millions (if not a billion), not getting compensated for his time.
Chicke Fitzgerald
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Chicke Fitzgerald Entrepreneur • Advisor
Game Changing Strategist, Advisor & Technologist | Board Candidate | Zigging where others Zag
I also have an advisory board and I grant options to them for their service (again not more than an hour a month). If I need actual services from them (contract review as an example or help drafting a new agreement), right now, I ask them to take deferred payment terms, as I realize the equity isn't valuable until the company is sold.
Ed Berde
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Ed Berde Entrepreneur
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1% is a normal amount for strategic advisors and board members. Depending upon the stage your startup, or if you have revenue, it could be less. But they should bring more to the table than "1 hour per month and a 4 hour meeting per year". I would expect them to be available for advisory calls, provide contacts, intros, etc. In short, they should be available when you ring their phone, but don't abuse it.
Chicke Fitzgerald
0
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Chicke Fitzgerald Entrepreneur • Advisor
Game Changing Strategist, Advisor & Technologist | Board Candidate | Zigging where others Zag
Thank you Ed. I already have the tactical and strategic questions covered with my board chairman and my advisory board members who will take my call at any time. The intros go without saying for all advisory board and board members. It is my job to get all of them engaged enough that they can easily see opportunities when they are having other discussions. I don't expect any of my advisors to be my biz dev staff.
Neil Gordon
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Neil Gordon Advisor
Board Member, Corporate Finance Advisor and Strategy Consultant
Serving on the board of a startup is relatively light lifting in terms of a time commitment. A percentage point or two of equity should suffice, and I'd question the passion for your project of anyone who needed a cash fee in exchange for board service.
Chicke Fitzgerald
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Chicke Fitzgerald Entrepreneur • Advisor
Game Changing Strategist, Advisor & Technologist | Board Candidate | Zigging where others Zag
Thanks Neil. I agree on the "light lifting" comment. And you are right, at this early stage, cash isn't appropriate. However, if we expect the board members to travel for a meeting, compensating them for their travel is the right thing to do. If you can't afford an in person meeting with your board, just keep doing phone meetings.
Peter Jordan
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Peter Jordan Entrepreneur
Revenue hacker for startups - journey to the $1 of revenue
Chicke, it more depends on your the current value of your shares. High value BOD members in the Bay Area receive on average $100 K worth of equity. My suggestion is that you set the value and present a number of share instead of a percentage of outstanding. Peter
Bert Wank
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Bert Wank Advisor
Power Management Technologist ► Start-up executive ► Product Innovator
0.5 to 1.5% sound reasonable of likely a 15-20% restricted stock pool you may have reserved. It really is for lending their name and thus credibility, perhaps some governance if actively participating in Board meetings, asking the right questions. Contrary to the first offered analogy, which I like in principle, not for building the house, but to make sure your general contractor contracts are sound with reputable and vetted firms your house is built on. This signals to subcontractors they are watched by someone who knows key stakeholders in the industry, preventing underperformance.
Joe Albano, PhD
2
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Joe Albano, PhD Advisor
Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.
I always get curious on how the math will play out. Let's say 1% ... times how many key advisors/board members? Then there are key executives / cofounders / employees. What percentage do they get? How many of them are there? Are you still at the "I want 51% stage". That means you have 49% to "play with". With you keeping 51% and let's call it a 20% attraction and retention pool (will all the advisors, board members, co-founders, and key employees fit in 20% ?), that leaves 29% for investors. Will that work at this stage? What will happen when you need to readjust (how will dilution impact morale). What will happen when a VC looks at your cap table?
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