Board / advisory compensation structure
September 24, 2021
by an investor from Michigan State University in Chicago, IL, USA
Hey Searchfunders,
I'd love to get experience shares from people who have either been board members / advisors or from searchers post-acquisition who worked with advisors. I'm trying to figure out what "market" compensation looks like.
Any specific experience sharing is great but specifically looking for the following situation:
* Self-funded searcher looking to engage an industry veteran pre-acquisition who would stay engaged as an advisor post-acquisition as well -- possibly for the entire length of the ownership hold
* Some amount of "get hands dirty" in the business -- figure 1-2 hours/week, not just sign-off board meetings once a quarter
* Advisor would likely invest capital into the deal
Thanks -- any help appreciated, with the more specifics the better!
John
from Michigan State University in Chicago, IL, USA
https://www.linkedin.com/pulse/how-construct-good-search-fund-board-directors-tom-matlack/
Tom says:
"The most straightforward way to do that, in my opinion, is to award board members a fixed $25k fee in equity each year. This is to emphasize that attendance at meetings is required but not sufficient to make progress. A lot of important work happens by working with the CEO between meetings. And this makes it clear that when a board member does a really good job, the reward will be non-trivial--money worth spending if the central challenge in generating search fund returns is molding a first-rate CEO out of a recent MBA graduate."
That seems basically right to me:
1) Right to co-invest in the equity at most favored nation terms
2) Some amount of equity grant every year, always pegged at the initial valuation
from Universidade de São Paulo in São Paulo, State of São Paulo, Brazil
My first recommendation is you to decide what kind of board your company demands.
Advisory board or Deliberative board, Do the board members assume liabilities? what exactly does the company need: stategic directioning, networking, compliance...?
After deciding those basic issues you will be more effective in deciding the correct board configuration and members profile.