Written July 1, 2020
It is best practice to have a written 'Advisor Agreement' or 'Advisor Letter'. This will manage the expectations of both parties, define the terms of any equity grant, and protect your company.
A typical advisor agreement defines the startup-advisor relationship. For example, the Advisor Agreement will set forth the advisor’s incentive equity amount and type (i.e. options or a restricted stock grant) and a vesting schedule. (Note that the Advisor Agreement is not a substitute for the Stock Option Agreement or Stock Grant Agreement, you'll need one of those as well to actually convey the stock.)
The Advisor Agreement should include, or have attached, the following terms and conditions.
The protection of confidential information should be addressed. To be useful as an advisor, they will have to know all about your startup including some or all of your confidential information. Advisors aren’t in the business of divulging confidential information, but in the worst-case scenario you will have an agreement in place and set the expectation that your startup’s confidential information is not to be disclosed or used for any other purpose. This type of clause is non-negotiable; if a potential advisor will not agree to the confidential information clause, it’s time to find a new advisor.
Another essential issue relates to the assignment of intellectual property. While all startup employees should be party to an inventions assignment, the inventions assignment provision in an Advisor Agreement should likely be ‘narrower’ than a typical employee inventions assignment clause. And in some cases, it may be ommitted. The more involved in development an Advisor is, the more likely at least a light inventions assignment would be required.
Finally, usually, advisor agreements may be terminated by either the startup or the advisor at will (i.e., immediately). Sometimes an advisor requests a longer termination period, but before you agree to that, ask why they are asking for that clause. Usually, there’s a workaround in their incentive equity grant that is a better solution.
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