• Make the agreement terminable at will, at any time, for any reason or for no reason.
• Define very, very specific milestones
• Rewarding people for fundraising requires competent counsel. There are both legal and practical issues to consider.”
“Deferred equity compensation is the best for the company,” Edwards said. “Require it to be converted to stock at the first equity round price. There are tax implications, so a creative structure must be put into place, i.e. an equity award subject to buyback by the company at par value (essentially zero). The amount of the buyback will depend on the first equity round price and how much stock has actually been earned.”
It’s clear from this group of experts that a great deal of forethought and planning should be involved before entering into any equity compensation agreement. It can be a great way to reduce your risk, preserve your capital and increase your return, but much care should be taken in choosing a company and structuring your compensation.
Elizabeth Kraus is an active angel investor and co-founder of the Impact Angel Group, a Boulder, Colo.-based investor group dedicated to making a difference and realizing a return. They apply best-of-breed practices to impact investing and connect viable social entrepreneurs with financial, intellectual and human capital.