Advice for Postdocs on Advising/Consulting for Start-Ups
by Inga Goldbard, Guest Blogger
Postdoctoral scholars, or postdocs, are graduates of PhD programs with very deep, and typically valuable, knowledge in a specific field. It’s no wonder that for many entrepreneurs, especially those in the biotechnology and life sciences fields, postdocs are seen as a valuable resource; they can often provide technical guidance, assist in product development, or consult on difficult and mission-critical projects. Depending on the scope of commitment expected from the postdoc, companies will usually seek to engage his or her services in one of two capacities: as a consultant or as an advisor. A consultant will typically be tasked with specific projects or goals that need to be completed within a specified timeframe, whereas an advisor will typically have a less concrete job description—usually founders will ask that the advisor be available for a certain number of hours or days per month to answer questions and provide input on issues in his or her area of expertise, usually in a less formal capacity.
Whether it is a consulting or an advisor role that is being negotiated, it is advisable both for postdocs and the companies that engage them to have a structure in place that clearly and unambiguously sets forth the terms of their engagement. While the volume of paper involved may seem daunting at first, this precaution will help ensure that there are no unpleasant surprises down the road, and no unfulfilled expectations on either side.
A confidentiality agreement (also called a non-disclosure agreement or NDA) is a basic agreement that almost every consultant or advisor will be asked to sign, and it requires that the party signing agree not to use or disclose proprietary or confidential information of the company, except in order to perform certain agreed-upon services or with the prior consent of the company.
While NDAs are very common and generally quite standard in their terms, it is important for postdocs to review what information is covered in the definition of “proprietary or confidential information of the company” to ensure that it does not capture technical knowledge or other general information that the postdoc will need to be able to use and disclose in the performance of other jobs and services going forward.
Assignment of Inventions Agreements
An assignment of inventions agreement, often combined with an NDA, states that any inventions or related intellectual property developed by the consultant or advisor in the course of performing services for the company shall be assigned to and become the property of the company (rather than the creator in his or her individual capacity). The scope of such an agreement can vary widely, from covering, on the narrow end, only work product, inventions or improvements created by the consultant/advisor specifically for the company in the course of his or her engagement with the company, to, on the broad end, covering all ideas, creations or developments made by the consultant/advisor (whether or not in the scope or duration of the consultant/advisor’s engagement with the company) that relate to the company’s business as presently conducted or as proposed to be conducted in the future.
Since the value that postdocs bring to the table is their deep and specific knowledge and expertise in their field, it important that the scope of the assignment of inventions agreement is not overbroad. The key is to understand what intellectual property, or IP (and related rights therein), is being assigned to the company, and to limit the scope of that assignment to only that IP that was developed in the course of the consulting or advisory engagement and specifically related to the business of the company as then conducted. The agreement should not (i) restrict how the postdoc can use his or her general knowledge, (ii) transfer ownership of the postdoc’s general knowledge, or (iii) prevent the postdoc from being able to use his or her knowledge in different settings that are not directly competitive, going forward.
For example, if a postdoc with an expertise in spinal alignment disorders, in the course of a consulting engagement for a spinal brace manufacturer, develops an improvement to the company’s brace technology, it would be reasonable for all rights in the improvement to the brace technology to be assigned to the company; it would not be reasonable for all prior research of the postdoc that relates to spinal braces, or to brace design, to be assigned to the company.
A non-competition agreement sets forth the restrictions on a consultant or advisor’s ability to engage in activities that are competitive to the business of the company, including providing consulting or advisory services to competing ventures. These agreements vary in scope and duration, though they tend to cover the period of the consultant’s (or in very rare cases, the advisor’s) service to the company and the period between 6 months to a year from the date of termination of such service.
The key concern in signing a non-compete is that it is not overbroad in its scope, and does not restrict the ability of postdocs to capitalize on or further commercialize their area of expertise, except in a way that that is directly competitive to the business of the company to which they are currently providing services.
For example, if a postdoc with an expertise in gluten intolerance consults for a company developing gluten-free energy bars, it would be reasonable to sign a non-compete that restricts the postdoc from consulting for any other company that makes energy bars until 6 months after the consulting relationship terminates; it would not be reasonable to sign a non-compete that restricts the postdoc from contracting with any business in the packaged food industry, or any company that makes gluten-free products, or any enterprise that may plan to compete with the company in the future.
A consulting agreement is typically an all-in-one document that sets forth all of the key terms of a consultant’s relationship with the company engaging his or her services, including the following:
- The services the consultant is expected to provide
- The payment obligations of the company
- The consultant’s confidentiality obligation with respect to confidential information of the company
- The assignment of intellectual property generated by the consultant in the course of his or her performance of the services under the agreement to the company
- Any restrictions on the consultant during the term of the consulting relationship or afterward with respect to consulting for competing ventures
While it is important for all consultants to understand all of the above terms as they are set forth in their consulting agreements, of particular interest for postdocs are the confidentiality, assignment of IP, and non-competition provisions (as discussed in greater detail above).
Advisory Board Letters
An advisory board letter is usually a shorter, 1-2 page agreement that covers at a high level the same sorts of terms discussed in the consulting agreement above. Since an advisor will normally have less exposure to confidential information of the company than a consultant, confidentiality provisions may be lighter. And since there is less of an expectation that the advisor will deliver a fixed work product, the assignment of IP language may be lighter as well. That being said, the concerns for a postdoc remain the same, and the terms of the letter, especially any terms relating to the IP assigned to the company and any restrictions on the advisor’s ability to use their knowledge going forward, should be carefully reviewed to make sure they do not unduly hamper the advisor’s ability to advise other ventures in the future.
Advisory letters do not usually contain any non-competition language since the advisory relationship is less formal than a consulting or employment relationship, and it is often understood by founders that advisors who have agreed to help them have also agreed to lend their expertise to numerous other ventures. Also, since advisors tend not to be paid, most are not willing to sign any agreement with burdensome restrictions on their conduct.
An option agreement sets forth the terms of an option grant from the company to the consultant or advisor. For consultants, options are usually a part of the compensation package (in addition to cash), while for advisors, options are typically the sole form of compensation received. At a very basic level, receiving an option means that you have the right to purchase a certain number of shares of the company’ stock, at a fixed price per share—both the number of shares subject to the option, and the price, referred to as the “exercise price” are set forth in the agreement. Receiving an option does not make you a stockholder; in order to own the shares underlying the option, you have to “exercise” the option, which means paying the exercise price specified in the agreement for the number of shares you want to purchase. The option becomes valuable or “in-the-money” when the value of the company’s shares exceeds the exercise price in the agreement—so you can purchase the shares for less than they are currently worth (and potentially make a profit)!
Although number of shares and exercise price are the most salient terms of the option grant, there are a couple of other terms to keep an eye on in your option agreement:
- The vesting schedule: Options grants are often subject to vesting, which means that your ability to exercise the option (buy the shares) will be tied to your performance of services. For example, if you have a 4-year vesting term on a 10,000 share option grant, by the end of the first year of providing consulting or advisory services you will have vested into 2,500 shares, which means that you now have the ability to purchase up to 2,500 shares, at the exercise price specified in your option agreement. A four-year vesting term may be appropriate for an advisor with an open-ended term of engagement, while for a consultant with a fixed project expected to last for 6 months, a 6-month vesting term would usually be more appropriate.
- The amount of time you have to exercise the option after termination of your relationship with the company: Most option agreements will specify that the optionholder has a fixed amount of time after the termination of the optionholder’s relationship with the company to exercise the option. The range for the amount of time can vary, but is often between 3 –6 months after the effective date of termination. It is important to note and keep track of this timing, because the consultant/advisor loses the right to exercise the option once the window has closed, and therefore loses any economic benefit the option might have had.
Inga Goldbard is an associate in WilmerHale’s Corporate Practice. She can be reached at +1 212 295 6306 or firstname.lastname@example.org.
photo credit: [ S H A M S ]