October 23, 2012
A few days ago, a friend who works at a growing startup emailed me with the following question (in which I’ve masked just a few of the identifying details):
- I caught up with a friend of mine from high school that has started a new company where my skills are very pertinent. He wants a data scientist to come do some work for them, and while I’m intrigued, I’m not ready to jump ship and join them 100% of the time. I am, however interested in throwing 20 hours a month into helping them out, possibly helping them recruit some talent when/if they need a full time analyst, etc. We’re close to formalizing some sort of relationship.
- Here are 3 questions that come to mind: 1) We’re using this document from the Founders Institute as a template and guide for comp. I’m curious if you think this is ballpark okay. 2) Are there any risks to serving as an advisor that I might not be thinking about? 3) Any other advice or experience with advisory relationships? I’m definitely not in the rainmaker category that I think a lot of young companies look for… in the short run I’ll be more like a part-time employee than an advisor, but expect that will change if the company moves forward.
My email response to his question was:
- On your questions below, it sounds like a good situation. You’re able to spend time with the company during its early stage to do some interesting work, explore if there’s a good fit for you there in the long run, and be compensated for the efforts which you’re putting in. The compensation framework and contract template are reasonable (though of course I am not a lawyer).
- But broadly speaking, I think that there are two risks/issues to be thinking about. The first is around your eventual role/compensation if you’re likely going to join full-time. Spending 20 hours a month is fairly significant amount of time. If in a few months or a year, you decide to take the leap to 100%, you’re of course want to negotiate an equity relationship which is more appropriate for that role. Unfortunately, your equity is already going to be anchored <1% depending on where the company is today. At that time, you may not have as much leverage (with the company or whatever their current/future investors) to meaningfully increase that amount to the same level where you would have come in if you started the conversation today about equity comp commensurate with a start working part-time yet with a specific path to full-time. The risk is that you’ll look back having put in meaningful time into the company and all-in not feel like whatever additional package they can offer you is worth it. Yet you might not want to make that personal commitment/signal today, which is also reasonable. The closer this role is to a part-time co-founder versus a later employee, the more acute an issue it is.
- The second risk is a contractual + relationship issue with your current employer. Depending on what you signed when you started your job, you may be prohibited from moonlighting, or at least required to disclose it. It’s up to you given the overall situation and your own point-of-view if you want to share this role with them. I think the worst-case scenario would be one where you eventually join this startup and your current employer finds out that all along you had a (potentially violating) contract in place with this startup and then jumped ship to them – they may not take kindly to that. Again, it all depends on your relationship and how you manage information.