Compensation for Outside Directors

I recently got a question from a local entrepreneur about “current board comp for an outside director” for an early stage company.  My friend is considering joining the board of a startup, and his guidance to me in answering the question was “the company is obviously pre-revenue, so cash protection is key at this phase.  Presumably options are the main tool.”

I encounter this regularly, as we often ask experienced entrepreneurs and/or executives to join the board of our early stage companies as outside directors.  In addition, when I was an angel investor, I often joined the board of companies and was on the receiving end of these option grants.

Following is my response with my guidelines. 

  • Allow any board member to buy into the last VC round.
  • Option grant vesting annually over four years that is equivalent to what a director/VP (not SVP/COO) level employee would get. This is typically 0.5% – 1% depending on the stage of the company (so 0.125% to 0.25% per year).
  • Full acceleration on change of control (single trigger) – FYI – this is the ONLY time I’ll give single trigger (except in certain founder cases).
  • 90 day exercise period if you leave the board. Sometimes I’ll extend this to a year, but I like this to be the same that employees get.
  • No cash renumeration.
  • Travel expenses covered.

Obviously situations vary, but I think these are good rules of thumb.  FYI – as a VC investor, I never ask (nor will I support giving) another VC investor a similar option package for serving on a board – we’ve already got our ownership stake and being a board member is part of our responsibility to the company.