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Consultant Agreement With Equity

I have an invaluable advisor who has helped me imagine and procure my product and product work. We have reached a point where we need to discuss a stake in the capital in exchange for a reduction in hourly fees to ensure its continued participation. Without him, I would be lost. What policies, ground rules, models or advice could you propose? One of the misunderstandings when it comes to capital agreements is that there are no costs associated with taking equity. This is not true, because if someone receives shares of a company, they have to declare their value and pay taxes on it. If a company is at an early stage, the value should be nominal. However, as soon as the business starts generating revenue, the value could be more than expected. The harsh reality is that most startups fail and it`s unlikely that your equity is worth anything. If you really believe in the team and the possibilities, do it, but don`t expect a big stroke of luck. TechCrunch puts the average tech company acquisition at around $200 million, but we estimate the median to be in the tens of millions range – for the 10% of companies returning. In most cases, cash is king and if you don`t build a portfolio, you may be better able to offer your services at a discounted price or with deferred compensation (after funding). One way to estimate the amount of equity to offer an employee is to determine the value the employee will offer to the company. This is called delta calculation.

A private equity agreement requires a written document to explain in detail how the program works. When companies decide to pay an employee or equity consultant, they usually use both cash and equity. An agreement offering 100% equity is unusual, as there is a risk that the provider will not receive adequate remuneration. In an equity agreement, it is important to be clear in your definition, the work that the beneficiary must do, as well as the performance standards that must be met in order for the capital to be preserved. Capital should comply with employee performance standards. The agreement should also specify when own funds will be disbursed and what the consequences of full non-compliance with performance standards will be. That is why performance standards must be specific, accessible and measurable. Most companies that offer to pay a consultant or employee in equity usually pay a combination of cash and equity. Offering a 100% equity agreement is not very common, as the risk for the supplier of not receiving compensation is too great. Explain how you arrived at equity value today and how you assess the potential risk and return from acquiring property rather than cash.

Be prepared to provide financial information about the business so that the recipient can perform due diligence and conduct their own risk assessment. At one time or another, most startups work with a consultant or enter into a contract with a strategic partner and face a dilemma: Does the company need to offer equity to the consultant or strategic partner to pay for services? For a startup with low starting capital, issuing shares or a warrant instead of paying cash is a simple way to get limited cash reserves while growing the business. . . .