compensationWe’re running a small start-up company (bootstrapped) and we’re planning to hire a mentor. We don’t know how much we should pay? How much equity we should give?
My experience is that most mentors do not get paid; I have personally "mentored" lots of startups, and it's honestly not worth the time and trouble of attempting to get compensation.
Beyond my personal experience, might be more notable to cover Techstars' expectations of their mentors:
Mentors work with the companies pro bono, without expectation of reward or compensation, will share of their knowledge and guidance freely, and will open their networks when appropriate.
Lastly, just in case it's not clear, a mentor is not the same things as a non-executive director, and as a result, not comparable; legally speaking non-executive directors are the custodians of the governance process for the company. If you're looking for information on that, that's really a different question; you're welcome to post a new question if needed.
Personally I’d say it depends on your situation. Firstly, does your business have the money to give away at the moment? paying someone in equity is a long term commitment whereas just giving them some cash is nice and simple. In my experience a mentor who is demanding they be paid isn’t really a mentor but a management consultant. This however may suit your situation! Getting some extra experience in is never a bad thing.
If you are hiring a mentor then you should pay them a salary, and not necessarily any equity. The salary should be based on the value you feel they add to your business, rather than what you think you can get away with paying them.
If this mentor is not actually being employed by the business, then you can just arrange a payment however you like. Personally I’d say a small share in the equity of your company, but that depends on the actual value (50% of a tiny company vs 1% of a huge one).
If the mentor is brought on to achieve a specific goal (like a consultant) then it may be worth negotiating a single payment once their goal has been met, but again, bare in mind that the actual figure should be based on how much value their contribution adds to the business. What is their expertise worth to you, rather than what can we talk them down to.
The bottom line is don’t pay someone more than they will add to your business, but make sure that you pay them fairly for the amount they add (not 100%, you of course need your take).
Hope this helps.
Free Startup Docs: How Much Equity Should Advisors Get?
How to Determine How Much Equity to Give to a Mentor
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