An advisory board can provide the necessary industry experience and insights to help your business succeed. Advisors can help guide entrepreneurs through the first few steps and assist in setting them on firm ground. Mentors are key to a startup’s success because they can prevent entrepreneurs from making big mistakes. An active board can help get your company into a accelerator such as 500 Startups or Y Combinator.
They can offer essential support, so entrepreneurs should want to compensate them for it.
Related: 5 Best Practices When Bringing on and Working With Advisors
Entrepreneurs typically don’t pay their advisors directly with cash, and usually, rely on using equity to incentivize them. They need to figure out just how much equity they should offer in exchange for advice and mentorship. This entire process can be cumbersome and overwhelming. In fact, mentors and advisors are known to back out of the deal entirely if a legal agreement is too confusing and intimidating.
Few mentors and advisors are willing to enter into contracts that demand their time and attention because they don’t fully understand the commitment required. The business community, especially the venture capitalist industry, has been aware of this problem but no one has had a concrete solution until recently.
Bypass this startup hurdle With FAST.
The Founder Institute consulted with experienced entrepreneurs, founders, advisors, mentors and startup teams and came up with FAST. It stands for Founder Advisor Standard Template, and it is a free legal document (get it here). It was created with the advice and assistance of Orrick Law Firm and Silicon Valley entrepreneurs. It provides an accessible framework for both advisors and founders to form a secure legal relationship early on.
Advisors and business owners need to have a productive and smooth relationship to survive the first few months of the startup. A long legal process will only hinder this relationship and cause uncertainty. FAST will help you remove all the hassle, cost and stress associated with the process. The document is clear, straightforward and legally binding, so you don’t need to struggle to understand the terms and you can avoid legal fees.
Related: 5 Tips for Forming an Advisory Board
How does it work?
The Founder Institute and Orrick wanted to standardize the process so that everyone could benefit from FAST. They identified three levels of company maturity: idea, startup and growth. They also came up with three levels of engagement: standard, strategic and expert. The founders can determine the compensation based on the levels of engagement at each stage of the company maturity. For example, official engagement would include monthly meetings and 0.25 percent engagement during the idea stage, 0.15 percent during the startup phase and 0.10 percent during the growth stage.
The agreement is flexible, and both parties can opt out if the situation doesn’t suit them. The FAST document is freely accessible online, so you can study it before you use it. I’ve started using FAST and the form has saved me hours of time, money and stress. Plus, it has helped me secure a handful of relationships.