If your startup is in the early stage of its growth cycle, you might seek legal, accounting, or strategic advice from an advisory board. While some advisory boards will accept a traditional fee structure in exchange for advice, other options exist. Given many startup businesses have limited liquidity, many advisory services will accept alternative forms of payment. This article will explain the alternative payment options you may use to compensate a startup advisor and some considerations you should keep in mind. <\/p>\n\n\n\n
The most straightforward way to compensate a startup advisor is to negotiate cash payment for their advice. However, most competent and qualified advisors charge a substantial fee for their time which can be upwards of hundreds of pounds an hour. Therefore, unless you have a sizable cash reserve, this may not be an option for your business. <\/p>\n\n\n\n
On the other hand, if you have a specific challenge you need to resolve, paying a professional advisory team a one-off fee to resolve it quickly and efficiently may be your business\u2019 best option. <\/p>\n\n\n\n
A startup advisor may offer their services in exchange for some form of equity in your business. <\/p>\n\n\n\n
As you may know, equity refers to ownership rights in a business. So, in plain terms, if you offer your startup advisors an equity stake in your company, you are giving them a share of ownership in your company in the form of company shares.<\/p>\n<\/div>\n\n\n\n
Practically, the startup advisor will take a portion of any profit or a share of the dividends you declare. Additionally, depending on the size of the stake and if their shares confer the advisor’s voting rights, they may be able to influence important business decisions. For example, they may be able to influence amendments to your company\u2019s articles of association. <\/p>\n\n\n\n
Advisors may seek a class of shares<\/a> in your company that are different from yours. Different classes of shares grant advisors different equity rights in your company. The two main rights in a company are the right to:<\/p>\n\n\n\n In many cases, advisors may want your business to issue them preference shares. These shares give them a legal right to first dibs on any dividends your business declares. This can be structured in different ways. For instance, they may be entitled to a fixed return on each preference share they own, such as 7p per share. <\/p>\n\n\n\n From your perspective, the decision to offer equity in exchange for the advisors\u2019 services must be justified by the value the advisors add. If you are in a position where your business is likely to grow regardless of their advice, offering them a guaranteed share of the success may not be justifiable. <\/p>\n\n\n\n On the other hand, if rapid growth is not yet on the horizon, offering shares in your company may be a low-risk gamble. That is to say, if your business does not take off, then you have not directly lost anything. However, if it does, then the value of the advisors\u2019 services is self-evident. <\/p>\n\n\n\n In practice, you might consider tying the extent of their equity compensation to key performance metrics. If the advisors help your business meet the targets, they are entitled to more equity. In all cases, you should seek advice from an independent solicitor. <\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\nCommercial Considerations<\/h3>\n\n\n\n