Advisor Agreements (and Red Flags) for Physicians Considering Startup or Company Advisor Positions
- 2 days ago
- 8 min read
Getting asked to serve as an advisor for a startup or a company can be very exciting, particularly if you’re a fan of what they’re building. Beyond monetary benefits of these roles, they can be the gateway to lots of great opportunities, including more similar roles, larger positions within the company, or even a career shift. However, it’s important to make sure that you review the advisor agreement carefully for red flags or other clauses that could create problems for you. We often get questions in our online physician community from doctors approached by companies reviewing advisor agreements with questions about what’s standard. While you should always consult an attorney for nuances related to specific contracts as well as guidance specific to your situation, we cover below some common things to consider before signing an advisory agreement.
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Things to note about advisory agreements for startups or companies
In general, these agreements should be friendly, not scary. They shouldn’t be 20 pages long - many are typically a few pages long and very straightforward in their wording. They should be crystal clear about expectations and compensation. You are there to help, but you shouldn’t feel like a company’s employee, and you shouldn’t have unreasonable requests on your time unless you are being compensated accordingly. Ultimately, you typically will have no idea whether this company will sink or swim, and your job is to help where you can, but not take on legal liability, onerous responsibilities, or reputational risk.
What are typical responsibilities?
Usually you’ll agree to meet a few times a month or a quarter, provide feedback to the company on things that they’re working on, and provide credibility, medical expertise or connections to the extent that you feel comfortable. In return, you should get fairly compensated with cash, equity, or a hybrid of the two.
What does a good advisory agreement look like for a physician considering a role with a startup or other company?
High level, you want your agreement to protect you, both legally and in regards to your time and reputation, and maintain flexibility for you as the company grows and evolves. To start with, you want it to be clear about your roles and responsibilities, how you’ll be compensated and how fair those terms are, liability, and how you can terminate the contract if needed. Let’s get into the details of what should be covered for each below.
Advisor roles and responsibilities
While advisor responsibilities often change over time as the company grows, you’ll want to understand what the minimum requirements are for you to get your compensation, as well as the most that you can be held accountable for doing. You may love the company and do far more, but you don’t want to be in a position where you are having to spend a lot more time, energy, or political capital than you were hoping to.
To this point, you should make sure the agreement covers what you are actually being brought on to do, with some examples including:
Giving feedback on products in development
Helping with brand awareness or marketing
Making connections on behalf of the company
Speaking
Time commitment of the advisory position
You’ll want to align on the amount of time you’ll be spending on the company so that everyone is on the same page. The last thing you want is to think you’ve committed to a meeting every quarter when the founders think you’re going to join multiple meetings a week with them. Therefore, make sure the advisor agreement outlines:
The frequency at which you’ll be expected to touch base with the team
Any required meetings with clients, conferences, or advisory board meetings
A total maximal hourly commitment per month
Again, ideally you’re incentivized to make the company grow as much as possible through your equity, but you don’t want to be held to more time than you have the bandwidth or desire to give. You can always choose to do more.
Avoid vague language such as “as much as needed” or “as much as reasonably expected.”
Compensation
You’ll want your agreement to clearly spell out:
The number of shares or options you’ll be receiving, in addition to any cash component
Any terms associated with those shares or options, such as vesting periods or cliffs - you want to understand exactly in what time frame and under what conditions your equity will be yours
Which pool of options your options are coming from and any limitations or restrictions to them
There are several red flags to be aware of in this regard. These include:
Equity that can be revoked even if vested, or that doesn’t vest
“Phantom equity” and lack of clear delineation of when it converts to tangible equity
A promise to figure out equity in the future without committing to the terms and timeframe now
Anything that feels like they’re really just using you as a free consultant but waiving a carrot with the “advisory” title
The last one is important here. Companies that require you to invest into their product to have “skin in the game” or who waive a fancy title like advisor when all they really want is free consulting are bad apples. Your time is valuable and you deserve to be compensated for it. If they don’t see that from the beginning, then it’s likely not a good fit. Even if the equity can’t be granted until they close another round, etc., the terms should be decided upon now.
Termination of advisory role conditions
You’ll want flexibility here as the company evolves. If a company is failing, you may not want to continue pouring 10 hours a month into it. Similarly, if it goes in a different direction than you were envisioning when you signed on that you are no longer comfortable with or want to be a part of, you should be able to get out of it.
Typical terms include a notice period by which either party can terminate (think 30 days-ish), the ability to keep any equity that you’ve vested into, and that you will no longer vest in any additional equity that you may have had claim to.
Anything that says you could lose equity that you’ve already vested into is a red flag.
Noncompete agreements, exclusivity clauses, or other conflict of interest protection such as confidentiality terms
Chances are, if you start taking on advisory roles, particularly if you have subject matter expertise or are a key opinion leader, you may get more offers, often in a similar space. You want to retain the right to work with other companies that you feel like are a good fit. As long as you’re not swapping confidential information between companies, companies should be okay with that. Especially in spaces such as health tech, companies that are not currently competitors may later become competitors, and you don’t want to be in a position of having to choose after having done work for both companies.
A reasonable clause will say something about protecting confidentiality and proprietary information if working with other companies. Red flags come up if they don’t allow you to work for anybody else in the sector or adjacent fields, or if they prevent you from talking about publicly available information.
Liability
This is a big one, especially for doctors. We have a dedicated article on this, but you want to ensure that you are shielded from liability that the company or its employees may incur. If you need E & O or D & O (directors and officers) insurance or malpractice insurance, make this clear from the getgo (and ideally ask them to pay for it).
Most advisory board positions have limited liability, if any. These are different than actual board seats or medical director positions. Board seats come with fiduciary responsibilities and you can get sued for the company’s actions if you have decision making power on behalf of the company. You should also have an indemnification clause against any acts by the company that you had nothing to do with.
Make sure you have something that looks something like this: “The Advisor will not serve as an officer, director, or employee of the company.” Avoid anything that gives you the term director or board member, or that assigns you any clinical or oversight responsibilities, as the legal implications there are different. This is especially important for startups that may want non-physicians to work under your supervision or want you to have other clinical responsibilities.
The indemnification clause should have wording similar to this: “The Company will indemnify the advisor against claims arising from advisory services or other legal claims against the Company.” You do not want any liability related to things the company is doing. Ultimately, you are not making decisions, medical or otherwise, for the company in a startup role.
Use of your likeness or name, and reputation related control
Especially if you are a key opinion leader, social media influencer, or otherwise have built up a strong brand or reputation, the reason a company may be bringing you on board is the credibility that you give to a brand or the access that you give to your audience.
The last thing that you want is for your primary reputation to be at risk for something a company decides to do, so ensure that you have final control over what is put out under your name, with your face, or with your words. A strong agreement will state that they will get your approval to use these things before putting them out publicly. Appropriate wording may be, “Company may not use Advisor’s name, likeness, content, or quotes without written consent.”
Be very careful about any wording that implies they are allowed to make statements implying that you endorse something, use you for marketing purposes, or that they can do something that you think may cause damage to your reputation. The clearer the language is that everything public in regards to you needs consent, the better.
Intellectual property
Most language in these agreements is going to favor the company, as what you are advising them on is likely going to help them to create, revise, or market their product. That said, you want to make sure there’s not an overreach into anything related to your brand, your expertise, or likewise.
Red flags should be any wording that is very vague and implies every discussion you have with them somehow gives them claim to an idea. It is reasonable however, for them to say that anything you develop together remains the property of the company.
Conclusion
While it’s very exciting to be asked to serve as an advisor for a company or startup, it’s important that everybody is clear on what is being asked for, and what is being promised in return. You should always consider running an agreement by a lawyer, as the other side surely has, and you want to protect yourself. Make sure that you protect your personal interests, brand, and reputation, as well as your time and energy. The contract should outline the bare minimum expectations for the equity or compensation being granted, but after that, it should be up to you how much or how little you choose to do.
Additional consulting & advisory resources for physicians
Related PSG resources:
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