If you’re an early-stage founder, you should be signing agreements with investors, advisors, and anybody else that has or could play a role in the development of the company.
Agreements help you suss out misunderstandings early
The earlier you can find out you’re not on the same page with another party, the more flexibility you’ll have in handling the situation. If you think that an advisor is providing occasional ad hoc advice that doesn’t impact your day-to-day operations, yet that advisor thinks that they’re an important strategic voice for the future growth of the company, there’s going to be tension. If you wait until your company is worth millions of dollars—and we assume it will be—things could get ugly. On the other hand, if you start off with an agreement that stipulates an hour of advice per month for 1,000 shares, there won’t be any unpleasant surprises down the road.
Agreements protect intellectual property
Agreements are also needed to ensure that all company intellectual property (IP) is secure. IP agreements protect the value you are building, by ensuring that all intellectual property created by employees while working for your company is legally transferred to the entity itself. In addition, these agreements assure investors that the company itself owns key IP rather than any individual.
Agreements can be updated
Agreements don’t have to be set in stone. If your advisor is providing an incredible level of insight, and it’s worth much more than you both previously assumed, you can renegotiate the terms of the agreement to reflect their increased value. Or, if on the other hand, they decide that they don’t have time to advise you because they’re too busy tearing through the entire Tayari Jones catalogue, you can amend the agreement to reflect that as well. What an agreement does well is provide a baseline for those negotiations; without one, it could be more difficult to find common ground on which to discuss the changes.
Requesting agreements doesn’t make you demanding
Some first-time entrepreneurs believe that requesting agreements out of everyone they work with makes them seem demanding or out-of-touch. In fact, the opposite is more often true; by codifying your business relationships in writing, you signal that you are a professional who is shrewd enough to anticipate rather than react to problems. In addition, everybody who gets an agreement is going to have more confidence that if an unexpected variable pops up, you’ll have a road map to handle it.
Entering into these agreements doesn’t have to be a hassle. Using Fidelity, it’s easy to create and sign agreements, and have them organized and updated in a data room in real time.
Third parties mentioned and Fidelity are not affiliated.
Sample scenarios are for illustrative purposes only.
Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.