Being one of the world’s largest entrepreneur startup and training launch programs, the Founder Institute has worked towards providing innovative solutions for entrepreneurs over the years.
And one of the greatest problems that many startups face is having a well outlined agreement for advisors working for a new company. No one was able to get the exact format for how a fair agreement should be made. That is why the Founder Institute created the FAST agreement template for entrepreneurs.
The Founder/Advisor Standard Template, or FAST, outlines terms and allows an advisor agreement to be set by simply checking a few boxes and signing the dotted line. The main goal is to encourage more collaboration between new and experienced founders both in and out of the Founder Institute.
What is a FAST Agreement?
A FAST advisor agreement is a simple and short contract through which a person acts as a mentor or advisor for a company. Under a FAST Agreement, the person does not receive any cash compensation for their service, but instead has the right to receive shares in the future. By using a FAST Agreement, the advisor serves as an independent consultant, not as an employee.
The FAST advisor agreement holds key information setting the rules of the contract. These include:
- The services that you are expecting the advisor to offer;
- The amount and the type of shares that the advisor will be entitled to receive;
- The schedule for vesting the shares;
- The mechanism under which the advisor will receive shares; and
- How long the notice period is for terminating the engagement.
Why should I use a FAST agreement?
The FAST agreement is utilized by many entrepreneurs and advisors every year to establish a productive working relationship, support for a standardized amount of quality and trading support. The Founder Institute developed the FAST agreement to help aspiring entrepreneurs in startups around the world to set-up boards and engage with mentors that they interact with throughout the program.
This document was released in 2011 and has since been updated. In 2017, a Version 2 of the Fast advisor agreement was released which had a number of added enhancements including:
- The FAST Agreement can now be localized into any legal jurisdiction where corporate law supports the granting of options or restricted stock without having to hire a lawyer.
- Advisor commitment levels have been simplified and standardized.
- The signing of the Agreement has been simplified.
- The enforceability of the Agreement has been improved.
By using the FAST agreement for equity offering to your advisors, you can easily check a few boxes, sign the agreement and start working without wasting much time.
How to use “Founder/Advisor Standard Template?”
Let’s say you are starting your company with a great idea and a plan laid out in your head. But you need some expert advice and some guidance on how to take the next steps, and go looking for an advisor for your company.
Being an entrepreneur, you obviously want to compensate the advisors for the time that they dedicate for helping grow your business. But you have no idea on how much equity you need to offer the advisor for their assistance. That and once you have agreed to the initial terms, you will quickly become flooded with legal paperwork, including options, legal agreements, and more.
That is why the Founder Institute has developed a solution to this long-standing hurdle many startups experience. A free document to offer advisors and founders with a simple legal framework to formalize their relationship without any legal chaos.
With just a signature and a checkbox on the FAST advisor agreement, advisors and entrepreneurs can agree in minutes on how they will work together, on the right amount of equity compensation and on what has to be accomplished. All you need to do is download the FAST agreement and fill the details in the page and sign to begin the work. But before you do this, you need to know how to engage the right advisor for your company (being an entrepreneur).
How to Engage an Advisor?
Entrepreneurs should engage with advisors carefully. Just because someone has a good name and expertise does not mean that they are a good advisor, or that there will be good chemistry between you two.
The classic approach for an entrepreneur to find out if an advisor is the right one is to engage them to do the following:
- Research: The entrepreneur identifies between 10-15 target advisors that could help their business grow exponentially.
- Contact: Using professional site, like Linkedin and Crunchbase, the entrepreneur identifies people that are known and makes an introduction.
- Meeting: The entrepreneur sends an introduction and requests a call, coffee or lunch.
- Request: If the chemistry is good with the advisor, the entrepreneur makes a small request of the advisor to test out the working relationship.
- Opportunity: If the request leads to a successful lead, the entrepreneur presents an opportunity for the advisor to engage more formally with the business without discussing compensation.
- FAST: If the advisor agrees to engage, the entrepreneur sends the advisor the FAST agreement.
- Compensation: The FAST advisor Agreement supports the standard equity grants for an individual advisor.
FAST Equity Overview
There are three levels of company maturity that define the equity compensation. This includes the idea, startup, and growth. And just like this, there are three levels of engagement for an advisor that also influence the compensation, which is standard, strategic or expert.
For instance, if an advisor offers an early-stage startup with an expert level of help by meeting with the team monthly, hiring some skilled professionals, and taking a customer call, then this advisor will earn 1% of the company in the form of option vesting over a two year time period or restricted stock. While the same level of engagement for a growth stage company is compensated with just 0.6%.
The vesting terms of the FAST agreement are outlined on these three basic levels of Idea, Startup and Growth stage, and vary based on how committed each advisor is to the company.
The basic vesting terms of the agreement is on a pro rata monthly basis over a 2 year period, with a 3 month cliff.
The details of the vesting term in the FAST agreement are as below:
|Idea Stage||Startup Stage||Growth Stage|
|Standard: Quarterly Meetings||0.25%||0.20%||0.15%|
|Strategic: Monthly meetings, Add Recruiting||0.50%||0.40%||0.30%|
|Expert: Bi-monthly meetings, Add Contacts & Projects||1.00%||0.80%||0.60%|
You can understand all about the FAST advisor agreement and its details by downloading the form. Click here to download it!
Example: How much equity should I allocate to Advisors?
Let us take an example to explain this better.
You just formed a new startup focusing on software development in the finance industry, and have worked on a few jobs and built up a number of contacts over the years. You wanted to work for yourself, but have no idea on how to go about on the business aspect side of the company.
After seeking out an expert to give you assistance with this, you set-out your requirements and terms for them to help you with formulating the business plan, background research, networking, drafting business contracts, attracting investors, and attending company meetings. While they see the potential in your company, they also want to be compensated fairly. However as a startup, you don’t have the funds to meet their level of expertise, and decide on signing a FAST agreement for their services.
You agree on their level of commitment under the “Strategic Performance level”, and agree on 0.50% of the shares for their work, starting on January 1st, 2020, to vest completely over the first two years of the company. With 1,000,000 millions shares authorized in the company, this advisor would get a total of 5,000 shares for their work.
Therefore, if the advisor kept continually assisting the company for at least 10 hours per month, they would receive the first 625 shares on April 1st, 2020 (after cliff period), and 208 shares vested monthly after that. The total 5,000 shares would be received on January 1st, 2022.
And if the company grows in that time with a good customer base and profit coming into the company, the advisor would be happy with the shares they receive in the company, and the startup as well for getting the business off the ground in the beginning years.
So, being a founder or an advisor, you can say goodbye to all the hassle that comes with preparing the advisor agreement. With the FAST advisor agreement, everything is much simpler now.
And do not forget to keep a track of all the company as you give out shares to the advisor. That is where Eqvista can help you. Eqvista, the cap table application that would help you track and manage the shares in your company. Check out the application here!