Board Compensation Study

Monday, May 6, 2002

http://

BoardSeat has just published the first comprehensive report on the compensation and administration of boards of directors and advisory boards of venture capital-backed companies. We are producing a limited number of these reports and have already received healthy demand from many tier-one venture firms. The report covers the following areas:

· Recommended best practices for boards and advisory boards including: size,
composition, evolution, compensation by stage of company etc.

· Changes in board practices with company size and capitalization

· Board composition including: independent directors, VCs, other investors,
insiders, board observers

· Compensation by series funding round, Preferred A, B etc.

· Board management practices: D&O insurance, change of protection rights and
stock vs. cash compensation

For more information, please contact us on 415-648-0808 or email us at: survey@boardseat.com

****************************************************

Highlights from the Study
The activities of almost 100 companies are represented in the survey, the
majority of which had received more than $10 million in venture funding. Most
companies had received backing by tier one venture capital firms.

Board Director Size:
As companies raise more money, the board of directors tends to get bigger. The
average board size for companies that had raised less than $10 million is 5.3
members whereas the average board size for companies that had raised more than
$50 million is 6.7 members.

Board Director Compensation:
We calculated the equivalent number of shares a director would receive per
annum, to compare companies that had different vesting schedules. For example,
a director receiving an initial stock grant of 40,000 shares vesting over 4
years is assumed to have an annual compensation of 10,000 shares. Using this
figure, and the number of fully diluted shares outstanding after the last
financing round, we then calculated the percentage of fully diluted shares paid
per annum.

For companies that raised under $50 million, the mean percentage of shares
granted to independent board directors per annum is about 0.07-0.08% of the
fully diluted shares. However, that number drops to less than 0.05% for
companies that raised over $50 million.

Advisory Board Size:
68.8% of companies that had raised $10 million or less have an advisory board as
compared with only 37.5% of companies that had raised $50 million or more.
There is a wide range in the number of advisors retained by companies, with the
average advisory board size being about five members.

Advisory Board Compensation:
Companies that had raised less than $10 million pay their advisors, on average,
0.043% of the fully diluted shares outstanding per annum, which translates to
about half that paid to board directors. Companies that had raised more than
$50 million pay their advisors, on average, 0.013% per annum - about one quarter
that paid to board directors.

Other Highlights:

· 83.9 percent of companies compensate independent directors with stock options
only

· Only 6.6 percent of companies compensate investors for sitting on the board of
directors

· 38.4 percent of companies have no independent directors

· Just over half the companies surveyed hold directors and officers' insurance

· 72.7 percent of very early stage companies hold monthly board meetings

Directors & Officers Liability (D&O) Insurance
Last issue we asked whether you would consider sitting on the board of a company with $5 million venture capital funding but no D&O insurance.

The results show that roughly half the respondents would not consider sitting on such a board without D&O insurance:

18% said YES they would accept position even if company had no D&O insurance

35% said MAYBE they would accept position even if company had no D&O insurance

47% said NO they would not consider position without D&O insurance

Our reaction - Good news for insurers!


Short and succinct, BoardSeat Views presents a bi-monthly perspective on issues
related to boards and advisory boards. Our goal is to stimulate feedback and
debate so please feel free to share with your colleagues.

BoardSeat is a Silicon Valley search firm that specializes exclusively in board
director and advisory board searches and consulting. Our principle market is
public and venture-backed companies.

For a free subscription, please send an email to
views@boardseat.com with 'SUBSCRIBE' in the subject line.
If you already receive a copy of Views, there is no need to subscribe again.

Please send feedback and ideas to comments@boardseat.com

For more information, visit our website: www.boardseat.com

Return to Library of Business Information