While some mentors will help you grow your business with free high-quality advice, other mentors require payment for their time and counsel. Usually, for startup companies, these kinds of mentorship opportunities are compensated through equity rather than through cash, as most startups are cash poor. If you’re trying to attract mentors to your company who require equity as payment you’re likely wondering … how much equity is fair?
The Amount of Equity Depends on Your Business Model
The type of business you run and the specific expertise of the mentor whose help you want plays a large role in determining how much equity is a fair share.
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%.
Equity for Board Members
Board members startup companies often get between 1% to 3% equity, 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. 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 may require more of it to be worth their time.
Vesting of Equity
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 their commitment to helping take you to the next level over several years’ time.
Are There Any Good Mentors Who Will Help For Free?
Are there mentors who’ll simply give you advice for free? Absolutely. There are many people who’ll help you simply out of a desire to give back. This is especially true for folks who are retired.
That said, however, it’s unrealistic to hope that you can put together a core team of advisors simply out of goodwill. 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 a great way to do this.