Startup Advisor Equity Agreement
What: Make the consulting contract automatically expire every 6 months (or one of your favorite cadences) and ask both parties to sign an extension each time. One of the most important parts of any consulting contract – and one that will affect the future of your business – is the compensation component. This can be difficult because you`re essentially giving away a portion of your startup to a consultant who hasn`t proven themselves yet. “You can`t always tell who has enough time and who isn`t a snowflake and who works for the company in exchange for the potential fairness they get,” says Szymanski. Consultants are a valuable resource that can provide the right help at the right time for your startup. But remember: an advisory board is not about bragging about rights. It`s about finding dedicated allies with specific skills that can help you accomplish a clearly defined task. Choose your consultants as a co-founder. At best, a consultant can be critical to your success as a business. In the worst case, they can be a distraction and a waste of precious time or even a burden. Know what you`re getting into by identifying the type of advisor you want: we then took a closer look at the 48% of advisors who only receive equity as compensation.
We have broken down the amount of remuneration they receive in relation to the valuation of the company, the working days per year and the type of consultant to get additional information. There are three levels of maturity of the company that affect compensation in shares: idea, start-up or growth. There are also three levels of engagement for a consultant that also affect compensation: standard, strategic or expert. So, for example, if a consultant provides expert assistance to a start-up in the start-up by meeting with the team on a monthly basis, recruiting talent and taking a customer call, that advisor earns 1% of the company in the form of restricted shares or options acquired over a two-year period; while a similar level of commitment to a growth-stage company is offset by only 0.6%. The FAST Equity Framework is described below, and the full agreement explaining everything follows. What: Instead of letting your startup pay the equity advisor, ask them to invest, even if it`s just a token amount, for example, $5,000 in a $250,000 round. Most advisors also claim to be angel investors, so if they say no, ask yourself if they really believe in your business as much as they claim. If you`re interested in working with dozens of potential mentors and consultants to build your startup, then you should apply for a local Founder Institute program. You can apply at: As expected, the higher the valuation, the lower the amount of equity an advisor should expect. However, the fact that the median value of 1% is the same for both categories suggests that 1% is the most popular (modal) share amount given to advisors in a wide range of business valuations. Consultants may play a similar role to consultants, but are most often hired to perform one or more specific tasks or projects and are paid in cash.
Consultants can also help startups understand the specifics of traditional industries such as insurance. Kelly Fryer, program director for the Barclays accelerator, powered by Techstars, remembers a holding company that was successfully paired with an industry veteran. “The consultant filled the gaps in his industry knowledge and gave them credibility,” she says. “They were effective in taking a Socratic approach, helping them unpack problems, asking questions, playing devil`s advocate, but ultimately giving the founders the space to make their own decisions.” As a result, we created “FAST” (Founder / Advisor Standard Template), which describes the standard conditions and allows you to define a consultant agreement by simply checking a few boxes and signing the dotted line. The aim is to promote greater cooperation between experienced and new founders, both within and outside the start-up institute. Distributing equity to consultants is not rocket science, but as with many tasks for early-stage startups, it often happens arbitrarily and without awareness of the common legal mistakes that are being made. By approaching this task with a concrete plan and the support of the legal department, you can avoid pitfalls and take care of your consultants. Schmorak says Hostfully almost always recruits consultants from its expanded network and then reviews them as if they were employees. This means interviews, reference checks and making sure a potential advisor doesn`t have conflicts of interest because they`re advising another start-up in the same industry.
“It`s a big exercise in confidence, and a big part of hiring consultants has to do with the right fit,” she says. For example, general advisors are typically only compensated with equity (81% of the time), while types of advisors are more likely to receive a combination of cash and stock. Technology advisors are more likely to be compensated in both cash and equity (18% of the time), and board advisors are more likely to be unpaid at all (36%). It is not uncommon for an advisor to informally assist a start-up for a period of time before equity is granted. After all, early-stage startups are notoriously chaotic and disorganized, and if something isn`t critical to the company, it won`t happen. Ideally, however, startups won`t wait too long to spend shares on advisors, otherwise the advisor`s strike price – the price at which they have a stock option – can end up being much higher. If you have questions about consultants or other hiring agreements (all included in SeedLegals` launch plan), simply click the chat button or set aside time with a team member. It makes sense to see a higher spread for common stock allocations. The granting of common shares is usually only convenient if the fair market value of the company`s common shares is still quite low, which means that the advisor should join the early and early membership – as we see in the FAST agreement and in general with shares and startups in the start-up phase – tends to be rewarded. .