Technical Advisory Boards

The Role and Value of Technical Advisory Boards (TABs) for High-Tech Companies

I was recently asked about the significance and structure of Technical Advisory Boards (TABs) for high-tech companies. Based on my experience, TABs become truly valuable when a company reaches the low millions in revenue. Here’s a comprehensive overview of how to effectively set up and leverage a TAB.

Optimal Size and Composition

A TAB should be manageable and effective, ideally consisting of a one- or two-pizza team—meaning it should be small enough to be fed by one or two pizzas. This typically translates to about 5-7 members. The board should have a diverse mix of skills, blending technical expertise with business acumen. Including members with different backgrounds ensures a well-rounded perspective on both technical challenges and market opportunities.

Meeting Frequency and Format

Quarterly meetings are a good rhythm for TABs, striking a balance between staying informed and allowing enough time for developments to occur between sessions. At least one of these meetings should be in-person each year, ideally featuring a setting that fosters strong relationships and open dialogue—think good food and wine to enhance the experience.

Compensation Structure

Compensating TAB members with common stock options is a standard practice. A typical Non-Qualified Stock Option (NQSO) grant would be around 1% of the company’s capitalization table, adjusted as necessary to attract top-tier talent. This equity-based compensation aligns the interests of the advisors with the long-term success of the company.

Mission and Responsibilities

The primary mission of a TAB includes:

• Strategic Guidance: Proposing new technical directions and innovative solutions to existing problems.
• Risk Management: Highlighting potential risks and relevant new technologies that the company should consider.
• Networking: Facilitating introductions to key industry contacts.
• Critical Analysis: Providing candid feedback and challenging current plans and strategies to ensure robustness.

It’s important to note that TAB members do not have fiduciary responsibilities, which reduces risk for both the CEO and the advisors. This allows TAB members to offer candid advice without the legal obligations tied to board of director roles.

Invitation for Feedback

How does this align with your experiences? What other elements do you think are crucial for an effective TAB? I look forward to hearing your thoughts and continuing the conversation.