networking, profit-sharing, shares, distributionI am working at a very early-stage startup (seed round not raised yet). Recently we met someone with a huge network (he’s a mentor at one of the top startup incubators listed here).
Although he doesn't have industry-specific knowledge in our field, he can get us introductions with distribution partners that could potentially bring a lot of business.
We are wondering how to reward this mentor for sharing his network
SHARES
Reasons to give:
Reward for bringing potential value to business
Keep him interested so he can keep sharing network on long run
Reasons NOT to give:
Sharing a contact is a one-off action, share rewards are for long term
Vesting doesn’t make sense because once he’s shared the contact, he’s done his bit, having to take shares back later down the road doesn’t make sense, and making an exception doesn’t get us very excited
he doesn’t put any work/money into business (just shares contact), which might create tensions with rest of team/investors either working hard or putting in money
his introductions might turn out to not bring any revenue (we might only realize several months down the line)
Q1: Do you see additional reasons to give (or not) shares to this person?
Q2: Is there a typical % shares to give in such cases?
CUT OF PROFIT
We share a % of profit realized through distributions channels he got us in:
Reasons to give:
Reasons NOT to give:
Q3: Do you see additional reasons to give (or not) profit cut to this person?
Q4: Is there a typical % profit to give in such cases?
Q5: How long after intro should he keep receiving a % of profit?
Really appreciate your thought on rewarding referrers.
This mindset will give you a long term relationship with your partners and will help sustain in this environment.
Although you have great recommendation in order to reward BUT you must note that when you must reward him? Is when you have gotten something from the network. Giving shares, or any other of reward when you don’t get anything is useless.
Giving a share! - NO! You shouldn’t be giving him at all even if he gives a great network. Shares are given to someone to whom the benefits keeps coming. That is like investors and high experienced business(co-founders & Executives)
If in case you get a great contact to which you may have gotten huge idea or profit, you can give him 2% of the profit or you can help him get something that he *needs.
In my personal experience, I have learnt:
Network is everything, without it we are nothing
So you dont want to lose him, if not now, later he might provide you with many ideas or contacts. So Preferably some token of appreciation should suffice it! Here the token can be a coffee out or dinner not necessarily money.
*needs refer to person in contact of yours he might need help with or you may share you knowledge to him to which he will be benefited with.
I think you are missing something there - you become part of his network and you “owe” him, in the sense that you will probably help him if he comes to you with a reaonable request in the future. Helping people is an imortant component of building a network, it’s always better to have somebody eager to help you back than somebody just knowing you. Maybe the person he introduces you to has received help in the past and will help you because of that now. If and how he monetarizes his network is and should be his concern, if he says he doesn’t want a reward, you should accept that. (Imho)
if I had given shares to everyone who referred me to people in their network I’d have had no shares left very very quickly.
One thing I learned is that people (Especially experienced influential people) can be very kind and want to give you a hand up, especially if they can see you are working hard and are passionate.
In these situations, if there is something that I want from a mentor then I’d be inviting them to grab a coffee or a meal, find out how they are and their business is going and other companies they mentor etc, give them and update on where our company is asked and tell them directly than an introduction to X would be very helpful and why - this gives them an opportunity to discuss if it would be a good idea (they have more knowledge of X than I) and how they could go about making the intro.
the currency exchanged between myself and my mentor in this case would be pleasant social interaction which allowed them to feel helpful and beneficial (a reason they are mentoring in the first place). Also, a willingness to reciprocate in the future.
If the mentoring is more regular and they are adding long term regular benefit to the business then they are likely filling a gap in the business that can’t be filled elsewhere and so may make a good non-exec director. At which point they’d often become vested (our’s got 1% and we were post seed)
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