Advisors · Contracts

How do I enforce a cliff period?

Anonymous

May 18th, 2016

The cliff period we set for our advisor is approaching. Our advisor hasn't delivered on what he said he would and has been uncommunicative. He hasn't responded to our request to extend the cliff period and is not returning calls. If this can't be resolved, how do I enforce the cliff period, especially if the advisor refuses to sign anything? 
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Michael Barnathan

May 18th, 2016

Of course, if he's not returning calls, that *greatly* simplifies things. If that's the case, you have at this point made a good faith effort to communicate expectations, and the non-responsiveness in and of itself demonstrates that the advisor has neglected his duties. You may still have an argument on your hands in the future, but you likely have a good footing to drop him from the cap table at this point. I'd give one final warning telling him that he is about to be dropped if he doesn't answer, to be polite and to make it explicit that this is not happening arbitrarily. Give him a day or two to respond, then do it.

Michael Barnathan

May 18th, 2016

Did you communicate expectations in writing? Also, cliffs are usually 1 year. Why did you wait this long if the advisor wasn't performing?

Express your concerns with performance of the agreed upon duties and outline what he or she needs to do from here in order to earn the equity. If those continue not to get fulfilled, tell him/her that the agreement has not been satisfied.

I dislike equity cliffs for this reason among others. Now you've got an "I earned it / I didn't earn it" situation on your hands, and potential liability because anything you do now could be construed as waiting the year out while taking advantage of the advisor's services, then trying to back out of the agreement at the last minute.

Michael Brill Technology startup exec focused on AI-driven products

May 18th, 2016

Assumedly the agreement you signed gives you the right to terminate the agreement at any time. Terminate it. Look, people get busy and they often are too optimistic about how much energy they can put into things or they could simply be embarrassed about lack of progress. Call the advisor and see if they get back to you. Then just let them know that it really hasn't worked out and you think the best course of action for both parties it to terminate the agreement. 

Their response could be:
* "Yes, I agree" ... then done.
* "Hey, I know I haven't been too helpful but I've got more time and I'll get on it" ... if you believe them, your response can then be: fine, but I'd like to push the cliff date back 3 months. they'll almost certainly agree.
* "What? Hey, I helped you do X and Y. OK, I haven't done Z but now you're just trying to screw me." ... I imagine this is the scenario you're worried about. At this point you just need to make a principle vs. practical trade-off based on how strongly you feel and how strongly they feel and the probability that they'll hurt your chances of success. Also think about the message it sends to the rest of your team - is it likely to bring you together by not putting up with poor performance? 

Jeff Warren CEO and Co-Founder at Closer Mobile

May 18th, 2016

Michael hit the nail on the head.  If what form did your agreement and 'cliff' get structured?  Hopefully that is in an agreement/contract with a 'no fault' termination right by either party (generally 30 days upon written communication).  That type of term is very standard in advisory agreements (and I'll also say that I've never seen an advisor agreement with a cliff - just a steady vest).

Travis Hunter Social Media Marketing Pro ♦ Growth Hacker ♦ Twitter Marketer♦ Linkedin B2B expert ♦ Facebook B2C Social media expert

May 18th, 2016

Basically unless it's working out terminate the agreement, if you think your advisor can still bring value to your business then consider extending it with them.

Krassimir Fotev Founder of Peer Belt Inc.

May 19th, 2016

You just notify in writing about the contract termination. Check with the attorney, but simple email may suffice. Sent from my iPhone