The first decision to make is whether to add people to the company board as Independent Non-Executive-Directors or whether to set up an advisory entity – often called an advisory board, although the obligations are different at law. Whichever you choose, it is important you are very clear about your expectations and the responsibilities / liabilities your new recruits will incur.
A classic start-up / early stage governance pathway might look something like this:
- Go it alone when business begins – usually a group of founders; advised often by a company accountant and a lawyer in the set-up phase.
- Seek a trusted advisor to give guidance from time to time (often the accountant)
- Set up a small advisory board or add independent directors to your board where they become decision makes and not advisors.
- Expand your advisory board or add further directors pre-IPO and after your IPO if you get this far.
If you plan to add directors to your board or if you plan to establish an advisory entity, it is important to manage expectations. People are often interested and keen to assist, but need some basic information, including clarity around:
- What skills and networks are wanted / needed?
- What contribution would each member be expected to make?
- What time commitment is expected?
- What contribution outside meetings are expected?
- How will they be rewarded / compensated for their contribution?
If you are of the view that aspiring directors with some high-end in-demand skills, but with little board experience, might want a role on an early stage company just to gain experience, then think about it from the perspective of a potential ABM.
"I am offering to open my black book and make introductions to my network and connections. You might want me to attend the first meetings and endorse you and your product or service. You may need clarity and guidance around purpose and KPIs - reviewing the business model, understanding comparables in sector (s), putting together a proposal.
How to remunerate Advisory and or Board Members
What might resonate with a prospective advisory or board member for a commercial early-stage enterprise?
- Fee per diem - usually on 4 meeting pe year but can be more if potential targets are identified and busines is evolved. (anywhere between ($1,000 and $2,000 per half day is appropriate).
- Fee plus some upside if business is successful if you are relying on advisory board for advice plus introductions beyond usual contributions as advisory board members traditionally give advice / suggest contacts but don’t do the work.
- Mix of shares/options and perhaps a fee.
- No remuneration but acknowledge contribution - applies to early stage worthy ventures only
- If the entity is advisory only, a letter that indemnifies as an adviser not a decision maker. If you are appointing to your board, then a consent to act as a director.
- A time frame on their appointment.
But there is nothing like testing the market – you could ask for nominations via a platform such as WOB and then ask them to nominate their remuneration arrangement, after a first meeting and their signing a deed of confidentiality.
Seven reasons you need a solid advisory board
Project based advisory entities