Are you genuinely excited about what they’re working on and the potential they have? I was also a member of the Vision Board of ToysRUs.com and have served on the Board of Directors for The Franklin Mint, a leader in the collectibles industry. These vesting provisions should not have a cliff provision. I have been a. I am currently the Managing Partner of Lodestone Global, which provides strategy consulting and board development to closely held companies worldwide. You also avoid the risk of having to pay taxes on any unrealized gains, which could be the case if you instead exercise the stock later. As you can see from the chart, directors earned a $31k retainer, $2,750 per meeting and $750 per formal teleconference. My general rule of thumb is that each real round of funding will dilute the prior stakeholders in the range of 30% (with plenty of exceptions both higher and lower). The fact of the matter is Advisors who are not seeking compensation are unlikely to be strong Advisors. How do you know if you are paying too much or not enough? Do the founders have ethics that match your standards and are they running a generally clean business? 2. I’m not suggesting that all advisory gigs with Series A funded startups should come with 0.7% equity, but rather am showing equivalency of equity amounts before and after a round of funding so that you can take it into consideration. Most notably, if the company doesn’t execute well or if the vision and potential don’t play out as expected, for whatever reason, the liquidation preference rights that are held by Preferred shareholders could cause you to make nothing for your advisory efforts. As a result, the percentage of equity which is shared with Advisors for their engaged support decreases later on. If so, the vesting schedule ensures the advisor only gets whatever equity they deserve. If you don’t complete the exercise process, your vested equity will evaporate forever. It is imperative that the Advisor brings your team qualities it does not have, but needs. "A lot of times they don't have cash to get world-class talent. Unwinding a formal relationship after it’s papered up and compensation starts flowing is stressful for both parties. Latest on Compensation. For the fourth year in a row, total compensation for these schemes were paid roughly half cash and half equity. These are Advisors who deserve higher levels of compensation. Expertise of the advisor – as it relates to the needs of the company. Copyright © 2020 AllBusiness.com All Rights Reserved. There is a risk-reward dynamic that also comes into play when negotiating the right amount of equity. However, those players at the very top of their fields like “Coach K”, stand in a league of their own. However, they are not totally engaged at a level important to the company. Opinions expressed by Forbes Contributors are their own. Suggested payments are $1,000 to $1,500 a meeting, depending on your advisor’s time commitment and level of inconvenience. “Startup Success is so actionable that I immediately started applying the concepts as I read. Advisory directors now are more often "on call, or on the phone," says Merino, so a retainer makes more sense. I wrote an article on that titled “Accumulated By-the-Book Debt Will Eventually Come Due” and it includes an online assessment for the startup to take. How Much Should You Pay an Advisor For Your Company? Advisory Board Creation: What Is The Single Most Important Factor? Do you have enough available time in relation to what is expected for the engagement? EY & Citi On The Importance Of Resilience And Innovation, Impact 50: Investors Seeking Profit — And Pushing For Change.