What Independent Board Members Do (And How They're Compensated)
Written by Halle Tecco, MBA, MPH
Edited by Carly Newhouse, LCSW
Founders often know they should have an independent director but are hazy on when, why, and how. In our recent article, A Founder's Guide to Building and Managing a Board, we covered everything from board composition and governance documents to managing investor dynamics and running effective board meetings. We touched upon the role of the independent board member, but because they can play a uniquely critical role in managing board dynamics, they deserve a closer look.
Choosing the right independent director is one of the highest-leverage decisions a founder can make. The right person can become a trusted advisor, help manage board culture, and provide guidance that changes the company's trajectory. The wrong person becomes another voice around the table, adding noise without meaningful value.
In this guide, we’ll cover:
What makes an independent board member "independent"?
What do independent board members actually do?
When should you add an independent director?
How and what should founders look for in an independent director?
How much should you pay an independent board member? Market benchmarks by funding stage
How does independent director equity work?
Let’s dive in.
What makes an independent board member "independent"?
An independent board member is a director who does not represent management or a significant investor. Like every other board member, they have a fiduciary duty to act in the best interests of the company and all of its shareholders. What distinguishes them is not their legal responsibilities, but their incentives and perspective.
Founders naturally see the company through the lens of its mission, employees, and long-term vision. While investor directors also want the company to succeed, they have another key responsibility: generating returns for their fund. Much of the time, those interests are aligned. Occasionally they aren't. A founder may want to continue building for another decade, while an investor may want to prioritize their fund’s liquidity. Or, a founder may be eager to accept an acquisition offer that would be life-changing for them and their team, while an investor may want to hold out a few more years for a higher return. Everyone can act rationally and in good faith while reaching different conclusions.
An independent director should have no such competing incentives. Greg Sands of Costanoa Ventures considers independent board members a "lower-stakes sounding board":
"Everything an investor director says is loaded — because it comes with money. That’s why having an independent director as a “lower-stakes” sounding board and coach can give a founder/CEO an extra tool as they go through their journey. The best independent directors know when to be guardrails, when to push for extra performance, and when to function as empathetic listeners.”
This is how an independent director can be invaluable. They don't represent either side. Instead, they provide an objective voice to help the board determine what's best for the business itself, not any single party. As we discussed in our last piece on boards, that unique independence becomes especially valuable when founder and investor priorities begin to diverge.
What do independent board members actually do?
The best independent directors do far more than attend four board meetings each year.
First and foremost, they provide strategic guidance. Great independents have navigated the stage of growth your company is approaching, whether that's building a commercial organization, preparing for FDA approval, scaling internationally, or selling the business. Their value-add lies in having seen similar problems before and being able to counsel founders to avoid expensive mistakes without the concern that competing incentives are driving that guidance.
This is why the best independent directors often bring operating experience adjacent to, but distinct from, the founder's own. For example, Toby Cosgrove, the former CEO of Cleveland Clinic, brings decades of provider-side operating experience as a board member at Hims & Hers. Kathleen Sebelius, former U.S. Secretary of Health and Human Services, serves on Devoted Health's board, helping the company navigate the policy and regulatory landscape that shapes its Medicare Advantage business.
Many also become an important thought partner for the CEO outside the boardroom. Founding a company can be a lonely experience, and founders often need to have difficult conversations with everyone from employees and investors to co-founders. An experienced independent director can be a safe sounding board for thinking through a difficult executive hire, restructuring the leadership team, or deciding whether to pursue an acquisition. Those conversations rarely appear in board minutes, but they often become one of the most valuable ways the independent director supports the business.
Independent directors also help the board function more effectively. Because they aren't representing a particular shareholder, they're often well positioned to identify common ground when disagreements emerge. Rather than advocating for a single constituency, they can reframe discussions to focus on what best serves the company's long-term interests and hold people accountable to decisions that align with that.
Finally, good independents do real work. They make introductions to prospective customers, recruit executives, help with fundraising, provide references for key hires, advise on acquisitions, and share lessons from companies they've previously built or governed. In many ways, they become an extension of the leadership team.
When should you add an independent director?
Most venture-backed startups bring on their first independent director around the Series A, although the exact timing depends on the company and the existing board.
The most important considerations when choosing an independent director are board balance and skill diversity. As investor representation grows through additional fundraising rounds, adding an experienced, independent voice helps ensure board discussions remain focused on the long-term success of the business rather than on the priorities of any one stakeholder. Waiting too long to bring on the independent can make the independent seat harder to fill with someone perceived as truly independent rather than closely aligned with any one investor group.
If you're deciding how many board seats you should have, how board composition evolves from Seed through IPO, or how independent directors fit into broader board governance, our companion article, A Founder's Guide to Building and Managing a Board, covers those topics in much greater detail.
How and what should founders look for in an independent director?
“Your board members are optimally people that you wish you could hire for the company, that are truly out of reach otherwise.” - Elad Gil, High Growth Hand Book
The best independents combine relevant operating experience, the ability to ask thoughtful questions, and the credibility to have the respect of all other board members around the table. Strong independents challenge assumptions and help the board work through tension without becoming adversarial. Like any good board member, they make themselves available between meetings. They understand their governance role but don't confuse that with company management. Most importantly, they earn and keep the trust of both founders and investors.
Before meeting candidates, write an actual spec for the seat, the same way you would for a new hire. Consider the gaps on your board. Are you missing operating experience at a certain scale, expertise in a specific market, or a particular functional background, like a former CFO? You're unlikely to find all three in one person, so decide what your existing board lacks and prioritize accordingly. Many recommend creating a board subcommittee to recruit and interview potential candidates.
If you only have room for one independent seat, as is typical in the Series A, a current or former founder is usually the strongest choice. Someone who has built a company understands the disorientation of being a first-time CEO, will field your questions without condescension, and has likely lived through at least one moment that felt like an existential crisis, since nearly every startup has one. That background also makes them a genuine counterweight to your investor directors, precisely because they don't need anything from the VC. A successful entrepreneur already has the money, the reputation, and the network when sitting in that independent seat; the VC has no real leverage to pull them into line on a contentious vote.
That independence is exactly what founders need to protect. VCs will sometimes suggest a "friend of the firm" for the open seat: someone who has sat on several of that VC's other boards, worked at companies the VC has backed, or is likely to be placed in their next job by that same VC. These types of board members should be avoided because they understandably care deeply about maintaining their relationship with that investor. Whether the concern is realized or not, someone in that position may be more likely to vote with the investor when it counts, turning what should be a neutral seat into a second investor seat in disguise.
Before bringing any prospective independent to the full board, you’ll want to check for conflicts of interest and run reference checks with founders who have served on boards alongside the candidate.
It's also worth testing the relationship before you formalize it. For example, ask for an introduction to someone in their network, or their read on a current strategic problem you're facing, and see how they actually show up. And trust your gut.
How much should you pay an independent board member? Market benchmarks by funding stage
There are a couple of ways to compensate independent board members. According to my friends at J.Thelander Consulting, the actual amount of cash and/or equity differs based on how much venture funding the company has raised:
Under $15 million in total financing
At this stage, cash retainers are small and rare; one-time equity is the most common setup for independent directors:
74% of startups use equity-only compensation. Most provide a one-time equity grant (median 1.0% of the company), while a smaller share use annual equity grants (median 0.5% per year).
19% of startups combine cash and equity. Companies using this approach typically pay $25,000–27,000 annually in cash, along with 0.375% (annual) or 1.0% (one-time) equity.
7% of startups use cash-only compensation, with a median annual cash retainer of $16,000.
$15-49.9 million in total financing
In the Series A-B stages, most companies still use equity-only compensation. However, the median equity grant shrinks. And for those who offer cash-only compensation, the retainer is much larger.
72% of startups use equity-only compensation. Most provide a one-time equity grant (median 0.5% of the company), while a smaller share use annual equity grants (median 0.25% per year) or a combination of one-time and annual equity (0.5% upfront plus 0.2% annually).
20% of startups combine cash and equity. Companies using this approach typically pay $20,000–25,000 annually in cash, along with 0.27% (annual) or 0.8% (one-time) equity.
8% of startups use cash-only compensation, with a median annual cash retainer of $50,000.
$50-89.9 million in total financing
By this stage, cash compensation has become much more common, although nearly half of startups still rely on equity-only compensation for independent directors.
49% of startups use equity-only compensation, typically through a one-time equity grant with a median value of 0.5% of the company.
36% of startups combine cash and equity. Companies using this approach typically pay $30,000 annually in cash, along with 0.2% (annual) or 0.33% (one-time) in equity.
16% of startups use cash-only compensation, with a median annual cash retainer of $50,000.
$90 million+ in total financing
At later stages, cash compensation becomes the norm, with companies increasingly using a mix of cash and equity rather than equity alone.
38% of startups combine cash and equity. Companies using this approach typically pay $35,000–37,500 annually in cash, along with 0.11% (annual) or 0.44% (one-time) equity.
33% of startups use equity-only compensation, typically through a one-time equity grant with a median value of 0.29% of the company.
29% of startups use cash-only compensation, with a median annual cash retainer of $50,000.
How does independent director equity work?
Unlike venture investors, who purchase preferred stock, independent directors almost always receive shares of common equity. In early-stage venture-backed companies, this is most often granted as non-qualified stock options (NSOs), though some later-stage private use restricted stock units (RSUs) instead. This ensures directors participate in the company's upside alongside founders and employees, rather than receiving the special economic and governance rights that come with preferred shares.
Like startup employees, independent directors typically don't receive all of their equity upfront. Instead, the grant vests over time, meaning they earn ownership gradually as they continue serving on the board. This encourages long-term engagement and ensures directors remain invested in the company's success.
So, how long does it take for these shares to vest? A four-year vesting period is by far the market standard. According to J.Thelander Consulting, 59% of startups use a four-year vesting schedule for independent director equity. Another 16% use two years, 16% use three years, 7% use one year, and just 1% use five years.
Closing thoughts
Founders sometimes view the independent board seat as a governance requirement they'll take on if and when investors ask for it. That's the wrong way to think about it and would be a real missed opportunity.
The independent director is often the only person in the boardroom whose primary contribution is steady judgment without competing priorities. The right person can become a CEO’s trusted advisor, help navigate inevitable board disagreements, and positively steward both the board and the company for years to come.
If you're still building your board, we recommend starting with our comprehensive guide, A Founder's Guide to Building and Managing a Board, which covers board composition, governance, founder-investor dynamics, and the many other decisions that shape an effective board long before your first independent director joins.
You can access real-time cash and carry data on the Thelander platform by filling out the Thelander-PitchBook Investment Firm Compensation Survey here. There is no cost to participate, and all respondents receive access to the same data they give. All data is published in aggregate with no individual names or firm names reported.
