Discussion: View Thread

Hello,

I have enjoyed following this group over the past 6 months. I am a junior faculty and just starting to do side consulting. I have primarily stuck with short term well defined projects that I can charge an hourly rate to. I am trying to determine the best relationship to form with a startup I have been helping. They need more big picture guidance from me than day to day work. One thing we have discussed is serving as a scientific adviser. I was curious what that typically entails and how I should arrange compensation for that. 

I imagine the best thing I could do for them is help with big picture issues (trial design, analysis strategy, reviewing reports etc.) and serve as a resource for their analysts to ask a "senior statistician" questions. My understanding is that advisers usually get equity instead of salary (which I think will appeal to them). However, I am also wary of dedicating too much real time (i.e. answering daily analytic questions) for equity that may never be realized and some of these tasks seem to bleed over from adviser to consultant.

All that being said, I'm curious how such a relationship should be structured? What is the difference between an adviser vs. consultant with respect to both responsibilities and time commitments? What should an equity and/or salary structure look like? Any other thoughts would be appreciated.

Best,

Ben

-------------------------------------------
Benjamin Goldstein
Senior Biostatistician - Instructor
Quantitative Sciences Unit - Stanford University Department of Medicine
-------------------------------------------

Ben:

My guess is that as a scientific advisor,  you would be asked more strategic questions as opposed to data analytic questions.  It sounds like the start-up is a biotech company so that might involve questions like:  What disease and patient population should we target?  What kind of trials are done in this population?  How large are the trials?  How many trials would it take to get something approved in the US or in Europe?  What kind of statistical resources are needed? 

Personally,  I would rather be paid on an hourly basis as opposed to receiving equity,  especially if the stock is not publicly traded.  Whatever the agreement,  I would avoid signing any agreement which restricts you from other external consulting.   When I worked at Eli Lilly, our outside advisors were usually paid on an hourly basis and the agreements usually specified a maximum number of hours over the year which we thought they would be hired (the actual amount of time they worked could be less than the max for that year). 


-------------------------------------------
Roy Tamura
Associate Professor
University of South Florida
-------------------------------------------

In theory, as a scientific adviser I would anticipate that your role would become more big picture and strategic in focus, and less "nuts and bolts" on specific questions pertaining to specific projects.  To the extent that specific questions would get tossed your way, I would anticipate that those would be posed by other analysts who are looking for guidance.

As for the compensation issue, I imagine that really comes down to your tolerance of risk, the probability that the company will ever go public, and the expected value of the stock at initial public offering.  Obviously, none of these are known quantities, but you can make an estimate based on what you know about the company.  With those you can work out the expected value of the compensation and determine whether the potential value of the equity is sufficient for the time commitment they are asking of you.  And speaking of time commitments, make sure that your primary employer is OK with the involvement that you are considering with this firm.

-------------------------------------------
David Mangen
Owner
Mangen Research Associates, Inc.
-------------------------------------------







Original Message:
Sent: 11-06-2013 08:32
From: Roy Tamura
Subject: Being a Scientific Adviser vs Consultant


Ben:

My guess is that as a scientific advisor,  you would be asked more strategic questions as opposed to data analytic questions.  It sounds like the start-up is a biotech company so that might involve questions like:  What disease and patient population should we target?  What kind of trials are done in this population?  How large are the trials?  How many trials would it take to get something approved in the US or in Europe?  What kind of statistical resources are needed? 

Personally,  I would rather be paid on an hourly basis as opposed to receiving equity,  especially if the stock is not publicly traded.  Whatever the agreement,  I would avoid signing any agreement which restricts you from other external consulting.   When I worked at Eli Lilly, our outside advisors were usually paid on an hourly basis and the agreements usually specified a maximum number of hours over the year which we thought they would be hired (the actual amount of time they worked could be less than the max for that year). 


-------------------------------------------
Roy Tamura
Associate Professor
University of South Florida
-------------------------------------------

Perhaps I'm being overly cautious, but I would be concerned that having an equity stake in a firm might lead to the potential for a conflict of interest or give the appearance of one.  While the same thing can be said for taking a paycheck, the "stakes" here would seem to be higher.


Original Message:
Sent: 11-06-2013 11:25
From: David Mangen
Subject: Being a Scientific Adviser vs Consultant

In theory, as a scientific adviser I would anticipate that your role would become more big picture and strategic in focus, and less "nuts and bolts" on specific questions pertaining to specific projects.  To the extent that specific questions would get tossed your way, I would anticipate that those would be posed by other analysts who are looking for guidance.

As for the compensation issue, I imagine that really comes down to your tolerance of risk, the probability that the company will ever go public, and the expected value of the stock at initial public offering.  Obviously, none of these are known quantities, but you can make an estimate based on what you know about the company.  With those you can work out the expected value of the compensation and determine whether the potential value of the equity is sufficient for the time commitment they are asking of you.  And speaking of time commitments, make sure that your primary employer is OK with the involvement that you are considering with this firm.

-------------------------------------------
David Mangen
Owner
Mangen Research Associates, Inc.
-------------------------------------------

Ben,

With respect to the great responses and advices you got. I think you have a golden opportunity, I believe that the company values your services and opinion (you should be the judge of this claim) by offering you Scientific Advisor and equity stake in the company. You know your client better than all of us, you know their product and most probably you have some idea about the probability of success. I will evaluate the risks and consider more equity in the company, if you financially ok now.

Thanks,

Yahya

-------------------------------------------
Yahya Daoud
Biostatistician III
Baylor Health Care System
-------------------------------------------







Original Message:
Sent: 11-06-2013 13:51
From: Robert Gerzoff
Subject: Being a Scientific Adviser vs Consultant

Perhaps I'm being overly cautious, but I would be concerned that having an equity stake in a firm might lead to the potential for a conflict of interest or give the appearance of one.  While the same thing can be said for taking a paycheck, the "stakes" here would seem to be higher.


Original Message:
Sent: 11-06-2013 11:25
From: David Mangen
Subject: Being a Scientific Adviser vs Consultant

In theory, as a scientific adviser I would anticipate that your role would become more big picture and strategic in focus, and less "nuts and bolts" on specific questions pertaining to specific projects.  To the extent that specific questions would get tossed your way, I would anticipate that those would be posed by other analysts who are looking for guidance.

As for the compensation issue, I imagine that really comes down to your tolerance of risk, the probability that the company will ever go public, and the expected value of the stock at initial public offering.  Obviously, none of these are known quantities, but you can make an estimate based on what you know about the company.  With those you can work out the expected value of the compensation and determine whether the potential value of the equity is sufficient for the time commitment they are asking of you.  And speaking of time commitments, make sure that your primary employer is OK with the involvement that you are considering with this firm.

-------------------------------------------
David Mangen
Owner
Mangen Research Associates, Inc.
-------------------------------------------

If you ask for equity, you are assuming a level of risk that I would suggest is inadvisable no matter what your role. Are the people that you are report to getting a salary? If so, it is wholly inappropriate for you to forgo a salary. Even if they are doing this just for the equity, there is no reason to expect you to make the same sacrifice that they are making.

The only way you should consider an equity position is possibly through a reduced consulting rate. Take 1/2 or 2/3 of what you normally would charge in exchange for some equity.

Good luck!

-------------------------------------------
Stephen Simon
Independent Statistical Consultant
P. Mean Consulting
-------------------------------------------

Thank you for the helpful feedback - some good points were made. Managing conflict of interest will be important especially since I will have my own academic work on going. Fortunately my primary research is in a different area of application. My position also allows us to do 10hrs of consulting a week but I agree that's good to be aware of.

I think the key is going to be balancing "day-to-day" work which should entail some compensation with big picture advising which is more for equity. I agree it's a risk but also agree with Yahya that this is a unique opportunity. In my (limited) experience companies are (rightfully) reluctant to give equity. 

I'm curious if anyone that has experience with this what is a reasonable percentage to start at. The number of seen online is .5% - 1% with a two year vesting for "advisors." I would likely ask for fully vested just because they are further along in some respects (which is why they came to me) but was wondering if that is a typical percentage that people get or if it is reasonable to ask for more. Again I guess that comes down to what they plan to ask of me and what kind of valuation I can get on them.

Thanks,

Ben

-------------------------------------------
Benjamin Goldstein
Senior Biostatistician - Instructor
Quantitative Sciences Unit - Stanford University Department of Medicine
-------------------------------------------







Original Message:
Sent: 11-06-2013 11:18
From: Stephen Simon
Subject: Being a Scientific Adviser vs Consultant

If you ask for equity, you are assuming a level of risk that I would suggest is inadvisable no matter what your role. Are the people that you are report to getting a salary? If so, it is wholly inappropriate for you to forgo a salary. Even if they are doing this just for the equity, there is no reason to expect you to make the same sacrifice that they are making.

The only way you should consider an equity position is possibly through a reduced consulting rate. Take 1/2 or 2/3 of what you normally would charge in exchange for some equity.

Good luck!

-------------------------------------------
Stephen Simon
Independent Statistical Consultant
P. Mean Consulting
-------------------------------------------

I strongly agree with the other responders who expressed concern about "equity" arrangements.  This is a bad idea for many reasons.  The key issue for me is that it keeps things "clean" for all other clients by the fact that I'm able to always say that I have no equity in any companies.  Thus, appearances of conflict of interest and conflict of commitment are easily avoided.

I also don't see any inherent distinction between "consultant" and "scientific advisor", since the latter is just "higher order consulting" (or whatever you might like to call it).  In addition, I have never heard of any type of "understanding" that advisors should be compensated entirely different from consultants.  Working on an hourly basis is the most straightforward approach.  It avoids clients wasting my time, and also avoids me either feeling guilty because I'm being paid for not doing anything or feeling abused for spending more time than indicated by any sort of "retainer" type of agreement.

Chuck

-------------------------------------------
Charles Davis
CSD Biostatistics, Inc.
-------------------------------------------

If this company would like to put your name (and likely your affiliation with Stanford) in their documents as a Scientific Adviser, one option would be to do this pro bono or for an honorarium. You would not do any consulting per se, and that would have to be clear up front. This is like being on a Data Safety and Monitoring Board and receiving an honorarium, or serving on an IRB as part of your career.

If the company really wants consulting at a discount and/or with minimal risk to their own bottom line - and they could have the best of intentions, which many startups do - then you should probably charge them for consulting at your hourly rate. Equity is not just a financial risk, it is a possible conflict of interest, which I think someone else has already mentioned. When I am approached about this I tell the client that the best way for me to help them as a statistician is to ensure that there is not even the potential for the appearance of a conflict of interest. My consulting projects range from confirming numbers to guiding corporate strategy, and they are all charged at an hourly rate depending on the task. One discount that I offer is if the project is funded by a US federal grant, so that may also be an option for you here.

-------------------------------------------
Alicia Toledano
President
Biostatistics Consulting, LLC
-------------------------------------------

Alicia makes some good points. One possible option would be to charge a consulting fee, but get paid in options.

Plus: minimizes their cash flow issues.
Plus: You get the equity, and a startup connection.
Plus: You can walk away, if you need to, without the issues involved with getting your name off the masthead.

Minus: This avoids only some of the potential conflict of interest issues, because you do have an interest in the value of the options increasing -- and if you exercise the options they become equity.

-------------------------------------------
Michael Kruger
Information Resources Inc
-------------------------------------------







Original Message:
Sent: 11-07-2013 12:26
From: Alicia Toledano
Subject: Being a Scientific Adviser vs Consultant

If this company would like to put your name (and likely your affiliation with Stanford) in their documents as a Scientific Adviser, one option would be to do this pro bono or for an honorarium. You would not do any consulting per se, and that would have to be clear up front. This is like being on a Data Safety and Monitoring Board and receiving an honorarium, or serving on an IRB as part of your career.

If the company really wants consulting at a discount and/or with minimal risk to their own bottom line - and they could have the best of intentions, which many startups do - then you should probably charge them for consulting at your hourly rate. Equity is not just a financial risk, it is a possible conflict of interest, which I think someone else has already mentioned. When I am approached about this I tell the client that the best way for me to help them as a statistician is to ensure that there is not even the potential for the appearance of a conflict of interest. My consulting projects range from confirming numbers to guiding corporate strategy, and they are all charged at an hourly rate depending on the task. One discount that I offer is if the project is funded by a US federal grant, so that may also be an option for you here.

-------------------------------------------
Alicia Toledano
President
Biostatistics Consulting, LLC
-------------------------------------------

The conflict of interest issues will, in my opinion, exist regardless of whether payment for services received is in cash or stock.  They exist for regular employees as well.  Conflicts of interest are ubiquitous, and the real issue at stake here is much more of an ethical consideration -- how does one handle the ever-present conflicts -- than some absolute standard of truth.  

For those of you who believe that accepting equity creates an untenable conflict for you, that's fine.  It is good that you know that about yourself, so you can avoid the temptation, and you should therefore refuse to accept an equity positions.  But it is possible that accepting an equity position does not create an untenable situation for someone -- they can handle the financial pressures and keep their scientific ethics straight when confronted with the economic pressures.  This person can then accept an equity position provided that they are willing to be subjected to significant scrutiny simply because the appearance of a conflict is greater.  The objective conflict is of a different form than that experienced by a consultant or an employee, but I'm not so sure that it is any greater.  

And let's take the issue of equity and conflicts to a logical extreme.  Does this imply that one has a conflict of interest if they are consulting for, e.g., Lilly, and the mutual funds held inside of their 401(k) plan have invested in Lilly?  How about if they have purchased shares of Lilly stock in their personal investment account, and thus have more control over those shares than they might in the shares held by a mutual fund. Self-interest obviously rears its ugly head under these circumstances as well. Should we be forced to divest these shares if we accept a consulting position with the firm?

I am somewhat surprised that nobody has raised a cautionary note to the OP on a different level.  The start-up might be offering you a nicer title and stock options in hopes of getting free consulting in their last gasps to rescue the company before shutting the doors.  Have you seen their financials?



-------------------------------------------
David Mangen
Owner
Mangen Research Associates, Inc.
-------------------------------------------







Original Message:
Sent: 11-07-2013 13:20
From: Michael Kruger
Subject: Being a Scientific Adviser vs Consultant

Alicia makes some good points. One possible option would be to charge a consulting fee, but get paid in options.

Plus: minimizes their cash flow issues.
Plus: You get the equity, and a startup connection.
Plus: You can walk away, if you need to, without the issues involved with getting your name off the masthead.

Minus: This avoids only some of the potential conflict of interest issues, because you do have an interest in the value of the options increasing -- and if you exercise the options they become equity.

-------------------------------------------
Michael Kruger
Information Resources Inc
-------------------------------------------

These are wonderful thoughts and I appreciate the debate.

I agree with David and think COI is ubiquitous. Anyone involved with NIH funding now knows how competitive grants are and I have definitely seen unsubtle pressure for good results. I think it's good to be aware of the potential for COI but not something to run away from. The only exception is if it were an area that my own funding and research derives from just because it could make it harder to get that work accepted.

Ultimately what I've gotten out of this discussion is that I need to separate out the high level relationship from actual work. I like the comparison to a DSMB. Receiving an honorarium either in cash or equity for a quarterly meeting is a good way of thinking about it. But giving detailed feedback on Statistical Analysis Plans or analyzing data is hourly rates. 

Michael, I'm intrigued by your idea of getting paid in options. How does that work? Is that different from having a vesting period?

Thanks again,

Ben

-------------------------------------------
Benjamin Goldstein
Senior Biostatistician - Instructor
Quantitative Sciences Unit - Stanford University Department of Medicine
-------------------------------------------







Original Message:
Sent: 11-07-2013 14:45
From: David Mangen
Subject: Being a Scientific Adviser vs Consultant

The conflict of interest issues will, in my opinion, exist regardless of whether payment for services received is in cash or stock.  They exist for regular employees as well.  Conflicts of interest are ubiquitous, and the real issue at stake here is much more of an ethical consideration -- how does one handle the ever-present conflicts -- than some absolute standard of truth.  

For those of you who believe that accepting equity creates an untenable conflict for you, that's fine.  It is good that you know that about yourself, so you can avoid the temptation, and you should therefore refuse to accept an equity positions.  But it is possible that accepting an equity position does not create an untenable situation for someone -- they can handle the financial pressures and keep their scientific ethics straight when confronted with the economic pressures.  This person can then accept an equity position provided that they are willing to be subjected to significant scrutiny simply because the appearance of a conflict is greater.  The objective conflict is of a different form than that experienced by a consultant or an employee, but I'm not so sure that it is any greater.  

And let's take the issue of equity and conflicts to a logical extreme.  Does this imply that one has a conflict of interest if they are consulting for, e.g., Lilly, and the mutual funds held inside of their 401(k) plan have invested in Lilly?  How about if they have purchased shares of Lilly stock in their personal investment account, and thus have more control over those shares than they might in the shares held by a mutual fund. Self-interest obviously rears its ugly head under these circumstances as well. Should we be forced to divest these shares if we accept a consulting position with the firm?

I am somewhat surprised that nobody has raised a cautionary note to the OP on a different level.  The start-up might be offering you a nicer title and stock options in hopes of getting free consulting in their last gasps to rescue the company before shutting the doors.  Have you seen their financials?



-------------------------------------------
David Mangen
Owner
Mangen Research Associates, Inc.
-------------------------------------------







Original Message:
Sent: 11-07-2013 13:20
From: Michael Kruger
Subject: Being a Scientific Adviser vs Consultant

Alicia makes some good points. One possible option would be to charge a consulting fee, but get paid in options.

Plus: minimizes their cash flow issues.
Plus: You get the equity, and a startup connection.
Plus: You can walk away, if you need to, without the issues involved with getting your name off the masthead.

Minus: This avoids only some of the potential conflict of interest issues, because you do have an interest in the value of the options increasing -- and if you exercise the options they become equity.

-------------------------------------------
Michael Kruger
Information Resources Inc
-------------------------------------------