Board Members & Equity Mentors: What Percent Should You Give?

Board Members & Equity Mentors: What Percent Should You Give?

While some mentors will come and help you out for free, other mentors will be "paid." Usually for startup companies, these kinds of mentorship opportunities are compensated through equity rather than through cash, as most startups don't have all that much cash on hand. If you're working with such mentors, how much equity is a fair share?

==> It Depends on the Type of Business You Run

The type of business you run plays a large role in determining how much equity is a fair share.

If you run a small business, you're probably going to have to give away more equity than if you were operating a business with higher profit potential.

For example, if you want to get someone who owns 50 restaurants to advise you on how to open one restaurant, you'd probably have to give away a significant chunk - Say 5% to 10%.

On the other hand, if you're opening a restaurant chain yourself and are aiming for millions, you could probably give away less.

==> Baselines in a World Without Baselines

As a rule of thumb, board members in startup companies get 1% to 3%, depending on their level of experience and expected involvement in the company.

That said, there really isn't a set rule of thumb with these kinds of agreements. Some mentors will mentor you for free, while others will want 5% or more just to give advice.

It really comes down to what they believe the equity will be worth. If you're aiming to be the next Google and they believe you'll succeed, you may very well get away with less than 1%. On the other hand, if they expect their equity to be worth very little, they'll need more of it to be worth their time.

==> Vesting

Usually if you're going to give a mentor, advisor or board member equity in your business, you'll want to have those shares vest over time.

In other words, they should receive their portion of the company over a matter of years. Usually the time period is between three and five years.

That means in order to "earn" their 2% stake, they need to fulfill on their commitment to help take you to the next level over several years' time.

==> What About Free Mentors?

Are there mentors who'll simply give you advice for free? Absolutely. There are many, many people who'll help you simply out of a desire to give back.

That said however, it's unrealistic to hope that you can put together a core team of advisors simply out of good will. If you want to have advisors in all realms of your business, you're going to need an A team that has a vested interest in your business. Giving away equity is one of the best ways to do this.

How to Build a Team of Informal Mentors

Mentorship relationships don't always have to be formal relationships. Sometimes they can be as simple as "if I have a question, can I send you an email?" relationships. While individually these relationships might not change your life, having a whole rolodex of these kinds of mentors can make a big difference.

So how can you build up this network of informal mentors?

==> Where to Meet Mentors

Getting your foot in the door to meet mentors can be tough. Here are a few different ways to do it.

First, talk to your lawyer and your accountant. Hire the best lawyers you can, even if you don't need their legal services yet. Why? Do it for the network. The best lawyers also have high level clients. Have them do the introductions for you.

Another way you can make contact with successful individuals is through social networking. Many CEOs today run their own Twitter feeds. Retweeting their messages and @replying to them can help build up a relationship so you can eventually drop them an email.

You can also make it a point to attend conferences and trade shows. Meet influencers in person, build a connection and ask them for mentorship face to face.

==> The Authenticity Key

The key to making a great impression on a potential mentor is through authenticity.

Imagine for a moment what the world is like from the eyes of influential people. A lot of people want your attention, but the vast majority of them want your attention so they can get something from you.

You never know when people are approaching you out of genuine desire for connection or friendship, or if they have an ulterior motive.

Because this is the reality of what it's like to be extremely successful, successful people tend to have walls. The only real way around these walls is to be genuine and authentic.

If you're nervous about meeting them, say so. If you're building a business and want their help, be upfront about it. Don't pretend to be their friend with an ulterior motive; be 100% honest from the get-go.

==> What Kind of Mentorship to Ask For

Don't go overboard with your requests. Your requests for mentorship should be relatively straightforward and shouldn't require much of a commitment from your mentor.

Ask them if you can send them an email if you ever have a question in a specific arena. You can also ask if you could do a quick phone call with them at some point.

Don't ask for extended mentoring relationships unless you build a real connection.

Repeat this process again and again and you'll gradually amass a rolodex of successful people in different arenas that you can contact if you ever get stuck in your business.