Fast Agreement: Definition, Benefits, Tactics & Risks

A FAST agreement, or Founder Advisor Standard Template, is a simplified contract used in the startup ecosystem to formalize relationships between companies and advisors. It focuses on equity compensation rather than cash, ensuring that advisors receive the right to acquire shares in the company in the future. 

The agreement also clarifies that advisors serve as independent consultants and includes a non-disclosure agreement to protect confidential information. This standardized template helps streamline advisory board setups and aligns incentives with the company’s growth, making it a widely used tool in the startup ecosystem. 

Key Elements of Fast Agreements

When drafting a FAST agreement, several key elements must be considered to ensure clarity and effectiveness.

Clear Definition of Services

After years of working with venture firms and investing in early-stage startups, I’ve observed that a well-crafted FAST agreement begins with a precise definition of the advisor’s role and responsibilities. This section outlines the specific tasks the advisor is expected to perform, which may include:

• Business Planning: Assisting with developing strategic roadmaps, identifying growth opportunities, or refining the business model to ensure sustainability and scalability.
• Market Research: Providing insights into industry trends, analyzing competitor activities, and identifying potential market segments for expansion.
• Investor Relations: Helping with introductions to potential investors, crafting compelling pitches, and advising on fundraising strategies.

Equity Allocation and Distribution

Equity allocation is a cornerstone of FAST agreements, offering advisors compensation that aligns their interests with the company’s long-term success. Instead of immediate cash payments, advisors are granted equity in the form of future shares, which could take various forms, such as:

• Stock Options: Providing the advisor with the right to purchase company shares at a set price after a specified period.
• Restricted Stock Grants: Awarding shares that may be subject to certain conditions, such as vesting schedules or performance milestones.

The agreement must detail the equity allocation clearly, specifying:

• Type of Shares: Common or preferred shares, and any associated rights or restrictions.
• Quantity: The percentage or number of shares the advisor will receive.
• Vesting Schedule: The timeline or conditions under which the advisor earns their equity, ensuring their continued contribution to the company.

This structured approach ensures transparency and prevents disputes while offering tangible incentives for the advisor’s meaningful involvement in the company’s growth.

Termination Notice Period

A termination notice period is another essential element of a FAST agreement, providing both parties with a clear exit strategy. While not a formal executive severance in the traditional sense, the notice period is a softer form of contractual protection. This section specifies the length of time either party must give before ending the relationship for a seamless and professional termination process.

Key considerations for the termination notice period include:

• Mutual Protection: Both the company and the advisor benefit from a defined notice period, as it prevents abrupt terminations that could disrupt operations or leave commitments unfulfilled.
• Flexibility and Fairness: The notice period should balance the need for flexibility with the importance of honoring commitments, ensuring both parties have adequate time to transition responsibilities.
• Clear Terms: The agreement should outline the conditions under which termination is allowed, such as breach of contract, failure to meet expectations, or the advisor’s inability to continue their role.

This clarity ensures that both parties understand their rights and obligations during the termination process, reducing the likelihood of misunderstandings and fostering a professional resolution if the relationship is no longer beneficial.

Benefits of Rapid Deal Execution

The use of FAST agreements offers several benefits, particularly in terms of rapid deal execution:

• Time Efficiency: One of the primary advantages of a FAST agreement is its time efficiency. By providing a standardized and straightforward template, these agreements save time in negotiating advisor relationships. This is particularly beneficial for startups and companies that need to move quickly to capitalize on market opportunities.
• Cost Savings: FAST agreements also offer significant cost savings. By reducing the need for extensive legal assistance, companies can save money that can be better spent on other areas of growth and development.
• Standardization: The standardized nature of FAST agreements simplifies the process of granting options or restricted stock across various legal jurisdictions. This makes it easier for companies to engage advisors in different regions without having to navigate complex legal landscapes.
• Improved Enforceability: Updated versions of FAST agreements have improved enforceability, making them a reliable tool for both companies and advisors. This ensures that both parties can have confidence in the agreement and its terms.

Common Obstacles to Fast Agreements

Despite their many benefits, FAST agreements can also present certain challenges, such as the following:

• Lack of Clarity: One potential obstacle is a lack of clarity. Without clear specifications on services, equity allocation, and share distribution mechanisms, there can be misunderstandings and disputes. Both parties must have a clear understanding of the agreement’s terms to avoid any potential conflicts.
• Advisor Commitment Levels: It can be challenging to simplify and standardize advisor commitment levels. This can lead to confusion about expectations and the level of involvement required from the advisor.
• Negotiation Challenges: While the FAST agreement aims to streamline negotiations, there can still be challenges in reaching mutually agreeable terms. This is especially true if the advisor has high expectations for compensation or engagement levels.

Examples and Case Studies

FAST agreements are widely used in various scenarios, particularly in the startup and entrepreneurial sectors. Here are some examples:

• Software Startup: Consider a software development startup in the finance industry. By using a FAST agreement, the startup can engage an expert advisor to help with business planning, networking, and attracting investors. In return, the advisor receives shares in the company, aligning their interests with the startup’s success.
• Entrepreneurial Use: Many entrepreneurs use FAST agreements to establish advisory boards and engage with mentors through programs like the Founder Institute. This helps in setting up standardized advisory relationships, providing a clear framework for collaboration.

While not directly related to FAST agreements, GeoWealth’s case studies illustrate the importance of streamlined operations and efficient deal execution in financial services. This can be analogous to the benefits of using a FAST agreement, highlighting the value of clear and efficient contractual relationships.

Here are some examples of these case studies:

• Moving from an Expensive, Outdated TAMP: A rapidly growing independent RIA faced challenges with a costly and outdated TAMP that lacked flexibility and modern features. By transitioning to GeoWealth:
  • The firm saved over $150,000 annually, which was reinvested into marketing and growth initiatives.
  • GeoWealth provided a more cost-effective solution with proprietary technology, offering advanced features like sleeve-level portfolio reporting through a Unified Managed Account (UMA) structure.
  • This enabled the RIA to reduce client advisor fees and scale efficiently.
• Outsourcing Key Operational Roles: An RIA partnership experiencing rapid growth struggled with operational bottlenecks as key staff were bogged down by trading and day-to-day workflows. GeoWealth addressed this by:
  • Taking over trading, rebalancing, billing, and quarterly performance reporting.
  • Allowing the firm’s top producers to focus on client acquisition and relationship building.
  • Helping the firm avoid costly compliance issues through consultative support. This resulted in optimized operations, reduced hiring needs, and accelerated growth.

Strategies for Quick Deal Execution

In business and finance, mastering strategies for quick deal execution is critical. From effective negotiation tactics to practical best practices, these approaches can help close deals efficiently while maintaining professionalism and trust.

Negotiation Tactics

With my background in private equity and growth equity investing, I know that mastering negotiation tactics is crucial for closing quick deals in the fast-paced world of finance. Some of these key negotiation tactics include the following:

• Anchoring the Conversation: By making the first offer, you set the tone and guide the conversation toward your desired outcome. This is effective because people often rely on the first number they hear, making it a psychological anchor.
• Using Extreme Offers: Start with an unreasonable offer and then make small concessions. This creates the illusion of compromise while still achieving your initial goals. It’s a clever way to steer negotiations in your favor without appearing inflexible.
• Leveraging Concessions: Never accept an offer without asking the other party to make a concession. This not only reduces the offer but also sets the stage for a more favorable counteroffer. It’s a dance of give and take that can lead to a win-win situation.
• Practicing Active Listening: By genuinely understanding the other party’s needs, you can tailor your proposal to address their specific pain points. This not only builds rapport but also increases the likelihood of a successful deal.
• Identifying the Real Decision-Maker: Tailor your strategy to the person who holds the power to make decisions. This ensures that your efforts are directed towards the right individual, increasing the chances of a quick agreement.
• Building Trust: Transparency and respect go a long way in establishing a positive relationship. People are more likely to agree with someone they like and trust, making this a fundamental aspect of successful negotiations.

Best Practices for Expedited Deals

To expedite deals, following best practices is essential. Below are some examples of these practices:

• Follow Up Nicely: Regularly check in with the other party and politely ask for an estimated timeline if there are delays. This keeps the negotiation process on track and shows your commitment to closing the deal.
• Schedule Regular Check-Ins: Periodic calls or meetings help in avoiding last-minute rushes and delays. They also provide an opportunity to address any concerns and keep the momentum going.
• Avoid Showboating: Refrain from showing off off-hours work. This can create unnecessary stress and hard feelings. Treat everyone as professionals and discuss timing considerations respectfully.
• Set Realistic Deadlines: Avoid creating fake deadlines that may backfire if not met. This helps in maintaining credibility and avoiding frustration. A well-planned timeline ensures that everyone is aligned and working towards the same goal.
• Create a Transaction Timetable: Establish a detailed weekly timetable for complex deals like IPOs or M&A. This adds buffer time and ensures a more realistic timeline, reducing the risk of delays.

Legal and Risk Management Considerations

According to World Commerce & Contracting, 9.2% of annual revenue is lost due to poor contract management. This is mainly due to missed deadlines, hidden clauses, and unfulfilled obligations. Understanding the legal and risk management aspects of FAST agreements can help mitigate these errors and ensure smooth and efficient deal execution. 

If contracts and agreements are managed better, then loss of revenue could be avoided. Doing so will also make it easier to implement improvements. As per Shannon Smith from ContractNow:

“Making improvements requires understanding your current ways of working, identifying gaps, and understanding what teams need to improve their day-to-day handling of agreements.”

Hence, understanding legal and risk management considerations safeguards against potential pitfalls. These considerations can also enhance the agreement’s overall effectiveness.

Legal Considerations

FAST agreements streamline advisor relationships by simplifying commitment levels, the signing process, and enforceability. However, companies must address key legal factors, such as:

• Enforceability: Ensuring the agreement is legally sound and enforceable in different jurisdictions to protect all parties involved.
• Compliance with Equity Allocation: Adhering to legal requirements related to equity allocation and share distribution, as outlined in the agreement.
• Transparency: Clearly defining terms to avoid disputes or misunderstandings during the engagement period.

A thorough understanding of these legal aspects helps prevent costly mistakes and ensures smoother deal closures.

Risk Management

Effective risk management is a critical component of FAST agreements. Companies can proactively identify and address potential risks associated with the agreement, including:

• Assessing Business Impact: Evaluating how the agreement affects relationships with customers, competitors, and the marketplace.
• Contract Risk Management: Incorporating strategies to estimate and reduce legal exposure, potential losses, and time investment in negotiations.
• Efficiency and Expediency: Addressing risks early helps prevent delays, protect financial outcomes, and enhance negotiation outcomes.

The importance of a clear negotiation and risk management strategy cannot be overstated.