Advisors

Advisory or Consulting Agreements & Equity

indira pothuri Co-founder/CEO at EnBind

June 10th, 2013

Hi All,

Greatly appreciate suggestions on engaging someone in advisory or ongoing consultancy basis with equity to do initial business development or technology partnership  or raising capital for an enterprise product/service company.

Everyone of these experts or people with connections also help startups with business strategy to help the company/product to grow in the direction to close a customer or potential acquisition path. That person (playing advisory role/consultant) spends time to help the company, but at the end the deal may work or may not work. 

Appreciate your suggestions to come up with such agreements - based on contingency of closing a deal + basic compensation for initial work that they have done to lead company in that direction. How is it done when such an event successfully happens - capital, technology partnerships, and customer acquisition, and all of the above ?

Thanks!
indira


Rob Mathewson

June 10th, 2013

If they're offering intros, then give them a 3-5% finder's fee. If they're offering to set up meetings and carry more of the burden, then you can scale up to as much as 25% of the desk value. Save your equity for people who are willing to join the team. 
Whatever you do, do NOT compensate up front. I've seen too many people under deliver after promising golden Rolodexes.

indira pothuri Co-founder/CEO at EnBind

June 10th, 2013

hi Rob, appreciate if you can clarify 3-5% and 25% numbers - out of net profit  ? I understand what you are referring to as per rolodexes, I'd go with agreements with contingencies on delivery. Thanks for the book recommendation, will surely get it!

Rob Mathewson

June 11th, 2013

The percentages are taken from the total value of the deal, payable when you get paid by the client.
Good luck.

indira pothuri Co-founder/CEO at EnBind

June 11th, 2013

Thank you all for info, great suggestions on books as well.

Blake West Software Engineer at Hint Health

June 10th, 2013

Hey Indira,
Perhaps others have different experience, but from what I have personally seen and understand, something like raising capital is not really the kind of thing you just have a board of advisors member do for you. It's a big undertaking, and it's they'll help make an intro or two, but it's still mostly you doing all the work. Same goes for business development. 

The board of advisors are meant to be a sounding board for your strategy, an experienced eye giving you feedback on the product, and also (I feel) a way to motivate you to keep making progress. With my advisors, we keep things light, but I call them or meet every few weeks, and when I do, I don't want to look like a chump who hasn't gotten anything done. 

As for agreements for board of advisors members, I'd say you should check out this "open source" agreement from the Founders Institute that has all the main points. I used it and slightly modified it when bringing on two advisors for my company. Check it out here: http://fi.co/contents/fast#


Mark Piekny Engineer, Consultant & Entrepreneur

June 11th, 2013

Not sure why my previous post did not show.  There's another thread on FD about this subject.  One contributor recommended the book, "Slicing Pie", by Mike Moyer.  I read it in an afternoon and found it clear and refreshing.  I recommend it and am now applying it's strategy to my own start-up.  Best of luck.

Mark Piekny Engineer, Consultant & Entrepreneur

June 10th, 2013

Blake West Software Engineer at Hint Health

June 10th, 2013

oh, and I should add... they should no doubt have some fundraising/biz dev contacts in your industry, but that shouldn't be their only asett. Make sure they'll be able to help you on an on-going basis, not just provide you with a few e-mail addresses.

Rob Mathewson

June 10th, 2013

I agree with Blake.
Raising capital is the CEO's job and early bus dev should be also. The one exception would be if  you have a founding member that will be dedicated to sales/bus dev.

An excellent book for you on selling to enterprise is Let's Get Real or Let's Not Play by Mahan Khalsa.

Build your advisory board to include a collection of seasoned entrepreneurs with a few positions dedicated to certain disciplines that you deem critical. 

Finally, I will warn you against hiring any service provider(or "advisor" or "consultant")  for equity. When they get another customer who has cash to pay them, they will drop you like a hot potato. 

indira pothuri Co-founder/CEO at EnBind

June 10th, 2013

Thanks for your inputs! Good points Blake and Rob. I agree with you that it is of course CEO's job, however, the rolodex of biz contacts that these experienced/veterans of the industry have and the value the intros add to the business  should be compensated and what/how to compensate these people is what I was looking for. FI link that Blake mentioned is helpful on that, thanks Blake.