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or a global chapter distribution mechanism so this is the Colorado chapter we have now 45 chapters around the world we're working on some in Australia we're working on some in Africa and so the goal really is to have a chapter on every continent with the exception of Antarctica everyone always points out to me by the end and so we're growing nicely and we're scaling and seems like we're doing some good so I would encourage you to pass the word and if you have not signed up on our Facebook channel of we're at Facebook slash SOAPnet org I mean SOAPnet and on our LinkedIn group so we presently have about approaching 30,000 people on the LinkedIn site and the website the the Facebook thing is scaling fairly quickly so do you want to stay in touch with what's going on that's how you do it so thanks again for joining us and and your membership so quickly I want to go around the room and just briefly briefly briefly entry introduce yourself don't give us that's just your name and what you do so we can let everybody know who's here and we raised money for US companies that are looking to raise money to do bioscience research David lung eating I have my own Salesforce consulting company focused on field sales and field service which overlaps with house with home health care medical device anybody who has to go out and install repair Antonio and CEOs and I've been there working computer services we do buy the practice HIPAA compliance networks for private practice physicians yeah Shannon you can attention teachers okay hi I'm Shannon O'Neil I'm actually a part of contracts are excited a I'm glad to be here been here a few times Thank You Arlen looking forward to hearing her own stock my background is working with sort of VC side startups and realtor stood on the legal and growth side thanks for hosting the event um no reform ago scientists and insurance and reward I'm making the Empyrean I am and I'm starting an early stage startup in the next week he's going to actually crack a smile Thank You Michelle Thompson background in banking and insurance I started consulting mainly focused on helping Flo Mallory Aspen commercial lending we are a commercial lender so ground up construction anything in the real estate space and in the medical space we health medical practices to refinance debt pay off debt by our practices all of it the chief operating officer Colorado Island [Music] focus on data privacy we have content provides content and try to control the flow and we are about to launch our platform to help companies to respond to the performia consumer privacy act Aaron Connell Financial Planner physicians attorneys navigate their student loans and financial base for the future good morning my name is Bob Logan with the concept of consulting my name is MJ I'm in the mental health field I'm a consultant with attorneys and dependency neglect in childhood family cases I'm also a professor at D U in the School of Social Work good morning my name is Christina DeHerrera I'm here prison the United States Patent and Trademark Office Rocky Mountain regional office here in Denver we just wanted to make you all aware that we are a resource that's available to everybody here in the area we plan on doing some more stuff together so we need to know from you what we can do together of your problems so thanks for showing up I started businesses and also was in banking for 35 years it's a national firm that only represents people in the healthcare sector all sorts of business and regulatory matters I primarily work with providers and small businessmen hi my name is Brandon Callaway Pony Media LLC here with Anthony today helping the live stream I do videography and photography for businesses an entrepreneur Kelly Sam holds emergency medicine serial entrepreneur medicine technology real estate my name is Bernadette I'm a radiologist we provide tell radiology services and they're looking to move into imaging the circumcenter operation I'm Donna Missouri I am a marketing consultant when the client needs to manage their programs I function as a fractional VP of Marketing a session came about because as with most of what we do we're trying to identify problems that need a solution and in this case my experience and maybe yours is that when startup entrepreneurs co-founders whatever engage people like you to be advisors consultants chief medical officer or board of directors management team anybody that's sort of engaged with the business there is a gap in understanding of what that entails so specifically when David says to me Arlen I want you to be a consultant or an adviser to my company that what I'm gonna say is well what do you want me to do and then how much you're gonna pay me because I come from the James Lowery school if we take your money to do good things so but the first question really is what you want me to do and serve in what role and so that typically leads to well send me a service Agri advisory agreement and the typical answer I get is what's that or can you send me a template or have you done this before and maybe you can send me an agreement that you've already signed so that's and it's a two-sided gap so the advisor really doesn't have has it doesn't know what they're asking for and the advise II doesn't know what they're getting themselves into so you wind up with bad feelings bills that don't get paid blah blah blah blah blah and it just spirals downhill and just a wasted effort so these folks are going to present you with an approach to a solution and I thought it would be useful to present it in front of the group so Sharon if you want to introduce the speaker then we can leave some time for questions but thanks again for hosting it and we look forward to your presentation so I am one of the other shams we come up with a solution we're trying to solve through technology the conundrum contracting more quickly and and without without necessarily as much of a heavy services component this is Ramon rynason the founder we just recently rebranded so you'll see some redline solutions on some things but been at all all the contact information still works and he's both an attorney and has you know over 25 years of experience negotiating contracts and thank you and thank you all for being here today just show of hands how many people when they came in actually gave our land a kiss that's all so what a woman went in front of me dick it's a kiss him and I thought is the you know is he going to be gender biased and he was I can tell you and and if you haven't done so it's a refreshing experience so and I did wash my hands before I did it oh good so so people just hear as a level setting exercise are actually I want to say good 20% and then how many people provide services to physicians and the medical industry and so here's an interesting point that I think physicians that have been practicing for more than seven years and that is that physicians are highly highly skilled information professionals on a fee-for-service basis that unlock economics for other people you can't really scale the fee-for-service model but you can scale a lot of businesses around it and hence the inside a space because the way that the rules and the way that the physicians have to practice and the investment that they make in order business very goals to actually care in the United States just off the top of your head just in all of healthcare service 3.7 trillion now right and just last year and the year before I mean hundreds of millions less so it's not only a large incredible number three point seven trillion dollars a little bit I think around seventeen eighteen percent of the US economy but it's also at its rape continuing to grow which of course is we've got all that money out there and the one folks that actually can actually difference inside of it making it money in that in history because the physicians don't make money on the trillions of dollars that are going where the money is made any idea of what you think the number one cost driver it is a health care system in the United States pharmaceuticals would be my guess that's what I would think as well right just give me something to take forth legal oh gosh those guys have got to go out of it but definitely not legal and definitely not malpractice and not those things it's not the elderly it's not women it's not children it's technology technology is the one cost driver in our health care system banging machine and unlike in other areas where every two years you buy an awesome machine it gets half-price rail actually stays the same price except for Apple phones they seem to just go up exorbitantly but Moore's law doesn't have I for technology in health care it's kind of crazy health care technology and if you think about technology we think about entrepreneurialship so we're finding we're really at the cusp of course we have been for some time of finding new and better ways of delivering the health care gosh the health care problem in the United States I would submit to you that we actually don't have a health care system in the United States we have a health care reimbursement system we have a terrific way of moving money in the United States for healthcare but not a really terrific health care system which I don't have a health care system we have a sick care system of systems there's a III I should have known to step lightly in this area with saying you my limited opinion on what's wrong with I come out of the claims world out of the insurance side so I see the ills with technology I have done practicing on-site of health care technology on the claims licensing area for gosh probably about over 1012 years now and can definitely where all the money is but not necessarily where all the solutions are so entrepreneurialship inside of this space is long in coming a lot of barriers to entry entrepreneurialship when you're a physician you've just spent a lot of a lot of time and energy and money obviously to get educated and what you're doing to become a practitioner and when you then get into practice and you recognize the fee-for-service model doesn't scale it's very difficult to pivot it's it's difficult to pivot out of that organizations like so and the support industry around entrepreneurialship probably isn't ever it's not it's not as strong as it's ever been the way it is now the strength of the support that you proneural ship is enormous and soap is a big driving factor for that being here to speak today we're going to specifically the risky business around starts contracting with investors and advisors but particularly on the advisors about investors and advice early on the adviser side and the as part is who's who so think about what an investor does right very basically an investor wants to buy part of your company for a really cheap risk right and so if you know you're sitting on a billion dollar company it's not worth a billion dollars the day you start you know an investor coming in and buying some of your shares early on deal for them you're buying in they're looking for a high return on investment the closed market fit for your products your solving a problem that they think should be solving that they can make money off of also for founders that have to be confident capable and trustworthy that will deliver a product or service that sells and between the product and service investors like to invest in which one products are service companies products and why products because you can scale a product you can't scale the hours in a day so when you're thinking about investors you're thinking about investing in early-stage product companies the advisor on the other hand sort of a friend for service in the beginning it's kind of a catch who do I know that can help me with this particular problem or what is it that an advisor does for me why do I even need an advisor these folks provide a service to your company that's the very beginning they are service providers as advisors we are service providers and it somehow gets lost in translation when you think about an advisor agreement you think it's a service it's for a period of time and they get paid to do it that's really art works which means that you know if you have a company that has advisors and you're giving you know 1% of your company away to each advisor well then you're pretty much done you don't have anything left in your company past the advisor stage so you have to think about what we're paying for so why do we need an advisor and the disclaimer here is that this photo does not show a picture of an attorney so founders actually do need specialized information in order to create their company the amount of to know these days to start a company to actually function a company is enormous and you're not going to some of them aren't important users my investors definitely the unlock certain opportunities and those opportunities and then unlocking that's really worth the value of paying an advisor to do company promotion industry name recognition I don't know if anybody has heard of the group media link out in California I'm forgetting Mike's last name the guy that runs that he is a sort of the godfather over there with advertising and in the advertising field and so you hire his company to go and introduce you to folks and they listen to him so he's a terrific opportunity of Industry name recognition finally I'm filling out an early stage team you know when it's you and a colleague that you're starting with there's only two of you for a team it's hard to get the credibility when you're going after a larger client and so sometimes you'll say here's our team and you'll add advisor photos as well to make your team look larger but also to understand that you're not just you know a couple of folks out of a garage so these are some of the reasons why you might get some advisors the advisor agreement like any other agreement pretty straightforward for lawyers maybe not so much folks offer consideration and acceptance these are the three things that pretty basic the advisors promising to do something for you and your counter promises the inviter says I'm going to consult with you for a period of time any agreement I'm going to create connections you possibly I've been upon ID aiding your products and services eating your later kind of an you on the other hand to pay right to pay them typically you're cash-strapped when you're first starting it's a percentage of the company we'll talk a little bit more about compensation later and then an option it could either be shares in the company or options to purchase company shares at a lower price and then finally in the most important piece of course is to write it down this is very important early stage companies often make mistakes in this area that is we don't write our contracts down we actually and send a lot of hard conversation what we made a promise so let me ask you a couple of questions at this point is an oral agreement a contract yeah it absolutely is it's a terrific it is such a terrific question an oral agreement is absolutely a contract the question is how enforceable would it be and so when we think about a contract by definition it's an exchange of promises that's enforceable in the courts how many of you think like like cases ever really gets to the courts anymore like do we even go to court anymore just the threat of going to court helps the enforce ability and that raises the cost oral arguments themselves really tricky to enforce because we lose what the promises were you promised that you said this and you promised to do that and so what happens then if it does go to court is that you have to prove what the contract was and how do you prove an oral statement but just see the actions that happened afterward so in a typical exchange again someone asked me to do this how detailed does it have to be in writing can it be arlynn I want to ask I want I'm offering you to be an adviser I'm offering you $100 a day to do it and sign this and it's an email and I say thanks I accept or I don't eat and that's the other issue you know what's an acceptance so let's just let's forget that for the time being but let's just say I agree thanks for asking me to work for your company in a in a three sentence email yes is that an enforceable contract absolutely so if somebody sends you an email and says I want you to do this and I promise to pay you X Y & Z and you write back and say okay we've had the offer person said look I want you to do this for me and I'll pay you you've had the acceptance you've written it down in an email sentence the Clinton administration emails are in fact part of contracts so at that point you do have a contract and the question is do we have the terms all is there some question about what the scope or what the terms were but that's definitely an enforceable kind so that's my next question so then typically the person wanting you to work for them wants to put as many paragraphs in the advisory agreement as possible yes like you get a 17 page legal blah blah blah yes versus the advisor who once as lip few constraints as possible that's so I want a three sentence email that says Arlen we're gonna hire you yeah you send back a 17 page obviously written by a lawyer document yes or template from hire yes hyatt legal services yes it outlines everything from soup to nuts yes what should the advise or do in that situation we're going to touch a little bit more about scope and about what the right balance is a little bit later inside of the presentation including compensation this is a common question this is what's drove the value prop for what we do at contracts rx tracks worth the value that it takes to actually review them so you've got like it's a it's of $200 or $5,000 gig but it's going to cost you $10,000 to review the cup to make sure that you're not getting hosed we see an awful lot of that we buy our contracts how do we actually do that is through template and if you have absolutely that's a very difficult question it would make me look bad to say cannon or the other Shannon mo user it's a Memorandum of Understanding or of agreement all of these things the question is does that constitute a contract Wendy actually because we're a letter of intent those are some of my favorites letter of intent it is not one of the key elements for contract is you've got to have consideration and what is consider a temple when the person said I want to hire you I want to see the comments for us I change for it doesn't mean you have to pay me the hundred dollars at that moment you're just making a promise to pay me a hundred dollars that's a very key piece and that's why we underline the concept of promises it's just an exchange of promises an executed contract is a contract where all the work has already been done and the promises of an exchange not a signed contract except executing it for an executed contract as a contract where all performance has been complete been paid perform the service the other the other issue that you'll run into if your life if you do your job correctly is you will be subcontracted so you start out with a start up to people in a basement with a patent on the wall it says I had no money and I want you to do blah blah blah and I either say yes or no to a major biopharmaceutical company who subcontracts your services to someone you know to do something else or a third party intermediary that is working for a biopharmaceutical or a medical device company that then contracts me to do stuff for them to do stuff for the Big Cheese now when you get into that value that food chain you can expect a very long advisory service agreement and and you can expect doodles of paperwork and non disclosures and due diligence and filling out all sorts of forms on the website now I dare you to be a consultant to a major biopharmaceutical company yeah it's real heartburn now yeah it's it depends too into you whether it's worth it or not I mean ultimately whether you do this depends on the value of the engagement to you tangibly and intangibly versus the compensation now is the brain damaged in the work simply worth it based on what you're promising to pay me or compensate me and compensation incidentally does in a lot of cases does not include cash it's either cash equity or both so just a couple of points for you to and finally and maybe you'll get into this if you are the contract or or the contract II there are significant tax and liability issues based that result from the promise warrants stock options all that stuff so before you get involved with this you really need to have a financial adviser an accountant a bank you know somebody that understands the implication because you could wind up paying taxes on shares that are worth noting yeah all kinds of stuff so that that's why we're presenting this so yeah heads up get the right people to inform you and make an informed decision well let's talk about that so let me get through the contract portion of it and then we can see where maybe a memorandum of understanding or a letter of intent you closed but are bringing you into this realm yet so so we've got a basic adviser contracts scope here we've got scope we've got compensation and then we've got something signed or some sort of a acceptance of that in this part of the story the key terms inside an agreement for an adviser agreement that both the advisors and the company retaining the advisors are really around the scope of services and so to Ireland's question how deep do we have to go into specifics I can tell you that the number problem and every contract that's a service contract is this it's the scope of services we have not specified what the scope of services are I either if it was not detailed enough then I'm not a meeting of the minds or vice versa if you didn't you wouldn't do that so I can compel you to do that and um so the scope art is probably the one area to really focus on a couple of our also compensation some of the things like assignment of product work that biopharmaceutical company or technology company and you're an advisor you can bet that they're going to want you to assign away anything that you create because that's the whole point their energy or their intellectual property so you'd be what you'd be signing away you know intellectual property rights with regard to anything that you created during the duration of your your advisory services a couple of other areas one provision that you should have we had to leave and I would say with that I just wanted to be mean leave out of every contract that you've ever seen what do you think by a show of hands well actually just throw out the the your thoughts the number one contract provision that you should always pay attention to likes the number one contract provision any ideas length duration that's a great idea breach of contract and that spelled out another great idea what's another one it's always the attorney that knows yep absolutely the answer is I'm not going to tell you know it's termination provision yeah absolutely when we have breach if we have a way to terminate early I'm good I don't have to go through the breach argument duration I have to wait two years this terrible relationship for another two years or for the for the folks that have actually acquired the advisor we have to give them one percent of it the actual most important thing in any array and as Mike the reason why termination is important when things are going well no one reads the cut out provision odd to say I'm excited to create a contract it's one of the funniest things as creating contracts we're all excited when we get into them you can prevail he shares that opinion the number one contract provision that you should pay attention to and and to answer sort of your question I I typically and I don't know how everybody else does this and I'm interested in how you do it but I think it's a good idea to build in the Devore were you how do you walk before you run particularly in startups particularly in situations where you a startup will come not just me but people like you and say Karl I want you to connect me to your rolodex and raise $500,000 for our seed round and they think Karl is a pretty good guy and knows how to do this but guess what he can't or the people he asked aren't interested whatever there's a million reasons you just so what I propose is I'm gonna do month we're gonna agree to work together for a month and it's a pilot it's it's your first date at Starbucks and a month you tell me whether you want to renew or renegotiate the agreement and then there's no hard feelings like okay I gave it my best shot I couldn't meet your objective thank you very much for what you paid me for that month we're okay and you know what usually it's the world is around place and when you get to a different place you come back to me and you say you know I'm in a different place I want to you would get whatever that's the point but Maya and you rent you do not buy rent in other words you don't want to sell them the company because now they're an owner you want to rent them in other words you pay the money for a period of time as I just said and then you can decide where's the value on both sides because my agenda may change you hire me I do it for a month a month later Lowry offers me you know five hundred thousand dollars work for his company and I don't want to work for you anymore because I'm laddering my commitment I want to work for the highest yield commitment and if you're at the bottom of the ladder it's like a bond ladder I want to rotate the bond to a higher interest rate I'm gonna do the same thing with an advisory portfolio so there's lots of ways to play this thing and finally the contract is worth the isn't worth the paper it's written on it's the people you sign it with so I don't care how many pages of gobbledygook you send me if I don't like you trust you I don't care what you send me I'm not doing it and oh and oh by the way when someone says we can't afford to pay you yes you can you just don't want to particularly if it's a month right oh absolutely look the other part of it also is it's an allocation of written so from the entrepreneurial perspective cash is you know the uncertainty around cash flow is enormous and so they think hmm this is an investment that I'm making well this investment yields something if the entrepreneur can use paper fully diluted paper they're giving you currency from the bank of company right and so it makes sense them in this term it gets a little tricky very difficult for advisors to have 15 companies that they're advising for and and have you know you know a quarter of a percent of share in each one of these companies but you can't you can't pay your own mortgage with that of course also and so what are your what are your feelings about so and I hate to just keep going on and on but I want to get these things out what do you think about for example safe agreements so a safe agreement is a simplified agreement for future equity sa Fe it was concocted by Y Combinator this big deal startup accelerator and a coast and it was designed to address this problem how what do you go what's the contract in plain English what do you want me to do how you're gonna compensate me what are the expectations but it does not it's a page it's a page and a half you can download it on the Internet No so how does that jive with all these all the legalese that the lawyers want versus the simplification that I want yeah so so there's definitely a balance there are some very key terms that an entrepreneur must have in my opinion there's also terms that the advisor would like to have as well we're gonna touch on a couple of them in fact you can see them up here for example we want to make sure that we've got confidentiality right if if you are speaking with advice and the advisors got the ability to share everything that they've spoken with you to other that's kind of a problem for the for the company but we've also got this concept of oh gosh and a non-compete would be kind of risky right that's risky for the but you can also see that if the entrepreneur is your services for a period they don't want you your services in your knowledge and maybe support a competitive early stage and so I don't think the safe agreement deal know these things I also don't think that the safe agreement necessarily handles scope effectively that said if you know the common areas or the checklist of items that you actually need to look for want to make sure that it's there right and the trick with the adviser agreement the trick with anything is that you're not a repeat player you're the advisor if you're the advisor you are the repeat player and it definitely behooves the adviser to create a contract for yourselves if you're going to be doing this in as a service offering and make it simple and make sure that all the big buckets are checked off you get surveyman to the other party they can read it they get it and that there's no driving process because that's the one thing that I think arcs everybody if it takes too long to get into contracting then we're wasting our time because no one gets paid at the MOU or the yellow first point you can spend an awful lot of time paying an attorney to draft an MOU there's no money on it it's just it's like a pre term sheet there's nothing enforceable about it and in fact can be often dangerous on the other side because it introduces information that you're likely going to need to keep confidential so you're taking on a burden and you're not getting paid what about the priest step which is Ireland before we do any of this I want you to sign a CDA or an NDA copy actual disclosure agreement or a nondisclosure agreement yeah these are almost fodder they're just table stakes these days I would not actually have anybody resist signing an NDA and the reason for that is because provided that the scope of the NDA is limited to the conversations that you're having with them you're in good shape like this is just the kind of stuff that it's a check is that early-stage companies happen if they're going to go for a larger money folks you want to make they owe and so it's a pedigree type of a thing that you actually have to that you have to be able to demonstrate and show I would be very careful about an NDA that's very long I in turn you have to keep confidentiality provisions for I would also be careful about NDA's that have non-competes in' or non solicits if it's got anything other than I promise not to say anything then it's probably something you don't want to do what's a reasonable list I would leave but an NDA at this stage literally two Ness not necessarily time but the just our conversations that were exchanging so I wouldn't put a necessarily duration on it I put a subject on it so wali what's your take on that so if someone says five years in some instances ten years that's ridiculous ridiculous you don't do that absolutely not right up of all of it like are you going like if you're signing an NDA and you're not receiving any compensation for this you've taken on the burden of needing to remember not to say something the next time you're out so enforceability of NDA's big question are you going to be taken to court no no one's going to actually go to court to do this until it's worth an awful lot of money way downstream if there's not enough money in the stream there's not going to be a fight no one's really going to fight for the sake of fighting however you can get the nasty grams right that says sign an NDA your this becomes a headache that you have to deal now but how enforceable is the non-compete or the restrictive covenant so the non-competes are super interesting in the state of Colorado it's best to think of a non-compete really as being based on unfair trade practices the reason why I ask you to sign a non-compete is because I'm share with you specialized information and it would be unfair for you to take that information to a competitor and so in the realm keep it confidential because I shared something special with you is where you have the enforceability so if it's just Arlen is a great guy he's got a lot of knowledge I shared with him stuff that inevitably there was someone else that would not be enforceable unless you were at the table a super high ranking person in the company setting all sorts of direction now you're spot on right and this is why when we think about a non-compete versus confidentiality the confidentiality protections would prevent more of this versus a non- ompete you can't take someone's information that's confidential and share it with others regardless of the purpose for doing so and so I would definitely if I'm an advisor I would probably shy away from the concept of non-compete and I would actually the adviser go more toward the confidentiality definitely more of that non-competes are kind of an if you think if you have an NDA that has a non-compete in it I think we need to seriously consider what coffee the other party is drinking you know what's the role of trade secrets and you know this question was coming so you you work for a cut I work for a company as an advisor who's intellectual property is a trade secret not a patent not a trademark not a copyright it's a trade secret and so if I sign on as an advisor therefore I promise not to reveal the trade secret assuming they keep it and all the stuff that goes with it but that seems to complicate all of this here here because then it's no longer a trade secret and it would invalidate [Music] and I would and I would imagine given the software world that because a lot of software IP protection is either copyright or trade secret no it's so interesting point for advisors is you if you if see this interpreter coming you and saying look I've got this great idea here's my trade secret you might want to say well no wait don't tell me that part I'm not I'm not if you tell me your trade secret that's not where the advice goes this gets back to the scope of the engagement absolutely said what you see what you that's the part of the enforceability and that gets a little bit more and if we can't up with some sample scopes so in the adviser agreement in the advice possibly possibly go certainly may be my top services are not well-defined I mentioned to you that that is if something that's going to get you in trouble or get you in conflict with who you're serving it's that you didn't really have a good understanding we're going to be second part you've been paid too much too much compensation for the adviser for the value that they got that is they made a bad deal now does the court protect you from a bad deal no bad deals are enforceable its could go wrong from the back I'm in a situation now they are starting to get much bigger now they're starting to raise some real money when they started they eyes are on board in the early stage you a founder advisor and he is got maybe 20% of the company in net Evans eight years he hasn't been there years my client has called me up and said can you get all and just talk with him and and see maybe how I'm gonna get right on that absolutely and we'll get into that all the things scheduled also but would have been nice that they had probably done this before he fully vested he owns them he's got 20 25 percent of the company and he's looking for the current market value price for the money raised in order to get bought out which would be you know it at least a quarter of a million to two two million dollars for having done nothing for that's what could go in sight we don't want to be in that situation when does it about let's let's keep it tighter on the and the advisory component finally the adviser acts like an employee the adviser binds the company tries to do deals try to do things that actually implicate or create challenges for the company as well that is the advisor act an agent of the company we want to be very careful to stay away from that I've seen a little bit of that the termination right that's our number one we want to make so if it goes wrong we can pull the button but it we can push the button pretty quickly I think we should also talk about the difference and the importance of the role an adviser is a very specific role I give you advice typically when you ask me for it because one of the problems with being an advisor is given advice when nobody really wants it and so you so I and you can take it or leave it I have no fiduciary responsibility to it's entirely up to you whether you want to do what I tell you to do or not as compared to for example a chief medical officer who's an employee of the company or more significantly a member of the Board of Directors so if someone asks you to be an adviser that's very different than I want you to be on my board of directors because a board person has a specific fiduciary responsibility to the stockholders and the liability so be very careful what you ask for and there are all kinds of tax issues and stock issues and liability issues and all the other stuff so some people say oh I want to be on a board now you know yeah not a good idea if you really don't know what you're getting yourself into this is on also often here Board of Advisors versus Board of Directors the Board of Directors inside of the company there are very few people that actually have direct liability for things that happen for the company board of directors do you have personal liability if you breach your a couple of the duties that you've got as a board of as a director that's right so but I don't want us to get confused around what a Board of Advisors does it's a group of people they're advisors but they they're they don't have like they don't have a board of director responsibility they're not really an official board that impacts the company and I've received offers to be a director on the Board of Advisors that's that's perfect what's that what does that mean right what is what does that mean yeah this is very careful that that's actually enormous ly important being a director on the Board of Advisors the Board of Advisors is a non-functioning organization in terms of it doesn't have any fiduciary obligations but being a director there and then we start to get into the well if you're a director there you're at the director level and you're using that title are you bringing that on are you taking that responsibility even though that's not really what was intended it that gets very very that's a very good example this is why we want or that for this work it's very clear we don't want to take on any titles we're advisers we don't want to be given any titles we don't want to be acting in any title capacity so so a scope of work and a sample scope of work might be something like this we've defined the amount of time would be the commitment where you have to be attending a quarterly meetings attending advisory board meetings and responsive of course these rules up in the beginning with the entrepreneurs because you'll get calls on hours or things that aren't really necessarily scheduled because entrepreneurial work sometimes quite often not fitting into a sort of a normal set of days the services that you might expect advisor to give to help promote the company write regular give insights to the company in its direction actively promote the up your rolodex and make some connections for us and maybe even you know promoting some of the materials that the company might have like I'll go ahead and be up a great spokesperson for you for this particular group of people ten new customers in other words if he's gonna only have five hours no you're spot-on right yeah what your what your touching base on here really is the rub between the advisor and what they want to do the entrepreneur is looking for bless you the the metrics around the service goes toward the valuation right this is interesting from the entrepreneurs perspective I want five introductions the quality of them I'm not going to talk about just I want you to introduce me to five people from the advisors perspective look I could be giving you five hours of my time what is the value of a 10-minute phone conversation in ten minutes I introduce you to this person it's exactly what you're looking for what's the value of that 10 minutes and so when we think about the milestones or the metrics that we're utilizing in order to value the service we should think about the true of the services that the company provides the advisor themselves I'll I'll I'll venture to say that advisors are more in the connection space and in the helping you frame an idea which will save you a bunch of time or make an opportunity possible but less around the metrics of it's got to be five and it's got to be five hours or this unless of course your paper consulting services but I would avoid the metrics component you don't hire genius by the hour now that in other words in in a lot of advisory situations you're paying for brand equity of the advisor you're not paying for face time you know Michael Jordan doesn't show up for Nike on every he's got brand equity he gets paid because his name is on the sneaker it's the same deal for many not all but many advisory agreements particularly when it comes to raising money and that's another problem which is what I call the I eat what you kill syndrome so you hire me to connect you to Kelly because I think Kelly wants to invest in company well once I make that introduction it's up to you to close the deal that's not my deal so I'm getting paid if you do your job I've done mine but it doesn't help anybody so what my point is I think it's a problem when you hire advisors by the hour sometimes you have to do that otherwise you simply don't get hired but you have to factor that into the equation right right and I well you're you're right but I would also say it's a two-way street and the two-way street is you get hired as an advisor and you get ghosted you don't hear from these folks they hire you and interestingly they still pay you but you don't hear from a myth like I'm supposed to participate now you like this guy you could say great I'm getting paid not doing any work in my view the worlds around place and eventually it's gonna come back to bite at us so I as an advisor will come to you and say listen I haven't heard from you in months I thought we were have like a monthly go then I terminate the agreement yes yes the advisor I terminate the agreement the worlds around place it's not worth the heartburn that's not it's just not right you're you're you're supposed to add value and if you're not adding value then cut it off this is the king this is an enormous advisor you definitely have to help that entrepreneur group not make their own bad deal with you they're their own worst enemy they really absolutely are I've seen this also with the smaller companies that we represent we do have a subscription base for some of this stuff that we do for them and if I don't hear from them after some period of time this isn't working you're spending money on something that's not creating value for you not giving you a solution that works we can't we can't take money for nothing it's not good for you plus at some point it's gonna come back and say like I paid all that money I didn't get anything I come back yeah absolutely ready to hire advisors if that's they just simply shouldn't have done it at that's if your heads down trying to get product out the door you don't want to have me bugging you saying watch you do this do that you want to get the product out the door when you start scaling maybe you need some strategic advice then let's have a conversation yeah it was a coming back it's trying yes yeah absolutely and whatwhat's vaccines are how contracts are morphing in digital space is that now we have the ability to M to embed video inside of a contract to almost Li explain what that portion of the contract is the service that we're coming out with here at the end of this week so the the ability to actually explain the contract term as you're getting into it so that you actually know what you're doing so you can so you can save time and those kind of components absolutely as advisors you are absolutely trying to remove the friction between the service that you provide in the entrepreneur that you're serving the rule breaker well look you just need to look at your watch that's what time it is I totally get it of course sometimes that's actually you know it's the economy stupid thing but of course you know how much are you paying for that you kind of feel whether you're getting the runaround or not it gets back to the scoping exercise yes [Music] well it's so we live in a state where you don't have to have permission for both parties to record the conversation that's not the case in California I was doing a negotiation with wellpoint anthem with their counsel and one of our business people was in another room and while I was in the room speaking with my my counterpart I had an open chat line that happened to have turn on the microphone and all of a sudden my face just flushed red when I realized that I'm actually recording what we're doing I'm transmitting it to an unknown third party that's illegal that was not great and if this is being won so so it is important before you do the recording to understand sort of what state you're in in the state of Colorado the law is only one part of the conversation needs to give consent not everybody but there are other jurisdictions that have all consent so it's something to keep in mind that is that you have to disclose before the recording it's always a good idea to disclose yep yeah just have to you just have to have disclosure you only need consent in the state of Colorado from one person for the recording so if a third party is recording and well here's an example right we're recording everything that we're doing here you only need consent from one party or one person inside of unity everybody's consent which is kind of interesting that would be kind of an interesting thing to think about for for all of this we've got other proprietary rights with regard damages and things like that I need to quit five minutes now well if that's the case then let me get right five minutes okay we were talking about compensation I did want to speak briefly about compensation and fast-talking lawyers that's really what you want to go for so compensation typically comes in either cash or in shares as arlen mentioned even of the shares and the types of compensation around shares options are becoming quite also attractive right like I'm giving you the option of I share right because you don't really have anything until you exercise the option 80 talk with your financial adviser about in general receiving shares inning is kind of a risky bit of business for the advisor receiving shares and giving shares options are a good way to go options I think are a good way to go because there is an exchange of consideration but you just later you actually get later so that kind of defers the compensation you do well that's the 8310 component but yet depends on the value of those shares usually in the beginning they're not worth a whole lot right I've got a three million dollar valuation I'm giving you a percentage of my company that's what we think it is if you do the 83 election you can defer some of the tax consequences until they actually come into the money however taking shares upfront is something that that does Drive a tax consequence and I would definitely as well as companies talked to tax professionals before doing that options can avoid that conversation for a bet payable over a vesting period we talked a little bit about the vesting period it's pretty important so the question always comes up is I'm being offered options what's a fair offer as an adviser yes and my understand and just my experience is a it depends on what you're being hired to do it depends on how much work you're being asked to do yeah and it's typically and it's typically gonna be about a half percent to five percent if you're on the board so it really depends on what the situation of the company is and what you're willing to accept because all negotiable and all that business and and the vesting period and all that business so bottom line talk to somebody financial adviser accountant lawyer so you understand what you're getting yourself into in terms of framework I found this chart to be both parties because it does talk about sort of level of effort stage of company and so if it's an early stage company and the level of effort is super heavy expert level you can probably get more than one percent it does go up a little bit higher than that if it is both stage company they've already got their ideas worked out they need you for something super narrow as an ad isor then it's going to typically be less we do tea we do speak about percentages of shares in the beginning like I'm gonna give you one percent of all of my shares of the company it's just easier for the math the reality is it's going to translate to some number of shares or some number of options I would take a look at the valuation of the company the level of effort and I would also take a look at at certainly the stage of where the company is in order to kind of get a feeling of what the value of the shares might be and what your time obviously is worth you can't take a whole bunch of advisory positions where you're an expert 1% of these companies and they're not yielding any cash or there's no really there's no way to come out of it so if you're in a private company again if you're on a board of a private company versus a public company much different the average salary of a public board of director is forty three thousand six hundred dollars but the average compensation per board meeting is two thousand five hundred and seventy three dollars I know that because they just published these numbers of course it's gonna be different if you're in a start-up so it just depends on the situation all right last piece is of course like increases the cost of transactions both laser as well as so understanding what it is that you want out of the relationship before you start this is just sort of the basic key so um you've got it a value but you've not done this before you don't know how to evaluate it this is the problem where they've just plopped over to you a 17 page document what's the best way to do this this is what we do comes in and comes in handy contracts are ex has produced models essentially for contracts we have a model for adviser agreements that helps you evaluate the contract and then score it to kind of see where it would land in terms of a normal or what you'd expect out of a out of an adviser agreement for the situation that you're in this is something that we produce on on our website please look for one of us afterward and love to give you access to it if you have advisor agreements with advisor agreements is that you just don't do it often and so they tend to be expensive agreements because it takes a lot of time you don't do it all that often that's where models and understanding just a guide to get through it makes things cheaper makes it really faster to go through that is the end of my presentation thank you so we have time for one or two more questions