How can an Advisor be rewarded if there's not a VC round or Sale down the line?
A guy who's help our SaaS startup a lot in the 1st 2 month of its life has suggested that we form and he join our Board of Advisors. He's very helpful to us, a great guy and will definitely be an asset. He has some good contacts and lives in the same city as us. No money/shares has been mentioned, perhaps it will be over the coming weeks.
What I'm wondering is - How can an Advisor be rewarded if you can't imagine your company every being acquired or taking VC (there are various reasons why I can't imagine it). We hope to grow our startup into a real, profit earning business, but if we succeed how can we reward our advisor(s) who would definitely have played a major role?
I know we can reward him with dinners and lunches, thanks etc. but I'd really hope that he'd be financially rewarded in some way in the unlikely event that we start making large profits (not VC).
Board Advisors Compensation Stock Options
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In general people like helping other people. He genuinely wants to see you succeed. If you are success buy him a Ferrari down the line ;). But don't worry about it much now. He may be happy with just being able to say he is on your board. – Ryan Doom 13 years ago
3 Answers
Depends on the motivation of the Advisor. Some join because they may be able to use what you're making down the road (these are the best kind, in my opinion), so early access and the ability to steer product development can be incentive for them to participate in a board of advisors.
However, your question touches on the broader topic of how potential shareholders might benefit from your enterprise if you don't have a liquidity event (IPO, merger/sale, etc) down the road. Several traditional methods are open to you, including dividends and stock buybacks, and which ones you might use really depend on the cash-flow situation of the enterprise going forward. Dividends are the most traditional mechanism for closely held corporations, though they do have that double taxation issue for C-corps, so that might influence your decision. Stock buybacks are another way, because they emulate what happens at a liquidity event from the perspective of the minority shareholder.
$100 per advisor board meeting (4 per year). It's not much, but creates a small obligation once they commit. More experienced voices say that many advisors work as advisors as a way to return knowledge back to the community as opposed to some external benefit. Make a good product/service with an exciting story... I think "interests, a challenge, and excitement" are a good return to an advisor.
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As a counter-point, I think that most of the good advisors I've worked with would react quite negatively to that type of remuneration. It pegs an explicit dollar value on their time, although you will eventually need to do that, for many advisors $100/mtg would be way too low a value and the offer may actually feel insulting. I'd suggest careful thought should be given to the implications before pursuing this particular direction. – Joseph Fung 13 years ago
It does not matter if you are going or not going to go for funding. You have to look at shares as what they are - ownership in the company.
If this advisor (or say contractor who is giving you a great deal) provides great value to your company - grant them shares and fully vest them. Once you start generating profit and paying dividends (profit sharing), these folks will start seeing monetary rewards of their work.
