So I’m about to engage with a start-up and support them in some activities in return of ESOP’s / company stocks. So we basically have a gentleman’s agreement how the structure should look like and how much of the company etc. But what are the pitfalls or tricks to look out for that I don’t get screwed over and to be have it contractually agreed (e.g. dilution etc)? Obviously I won’t have majority of the shares.
Step #1: Put the gentlemen’s agreement on paper.
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Step 1 already done.
The question is what else to put on the paper?
For such a specific question, I would recommend speaking directly with a lawyer or tax lawyer to make sure to cover all the pitfalls.
Unless you’re a founder I don’t think you’ll be able to avoid being diluted away, esp. if there’s liquidation preference for VCs during a fundraising round.
(So you can end up with 0 if the startup exits because the preferred shares are getting a guaranteed return)
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I suggest reading Paul Graham’s essays (founder of Y Combinator). He has multiple posts about term sheets and how to structure startups: Essays
And all the resources you can find on https://www.ycombinator.com/
Below you can find a pretty standard contract template for Startup advisory roles
I think that the suggested equity % is more typical for the US market, where valuations are generally higher. Thus it can be revised a bit upwards for the EU market imho