Should I Bring a Mentor into the Business?
I'm building a startup and because I have no experience other than a great idea, I enlisted the help of a mentor. Since then, I've been working with him and paying him by the hour. Now that I'm getting ready to hire a team, the mentor offered to come on board as the CEO and wants a certain percent of the company. Until I raise enough money, he said he'd work on a part-time basis at a reduced rate. What ownership percentage is normal to offer? I really need his help, but should I find someone else to be CEO?
Giving away a percent of your company is forever, and you only have 100 percent to give. What worries me is that you haven't done the deal yet and you're already wondering if you should get somebody else. That might be a bad sign. His offering to work on a part-time basis at a reduced rate, however, is a good sign. That makes it seem as though he believes in you and the business.
So, what percentage is fair? The answer goes all over the map. The idea by itself is worth nothing. It's the execution of the idea that creates value. Execution sometimes requires money and the people who put money in get the value with ownership.
Don't leave it between just you and your mentor. Find other people -- an attorney you both trust with small business experience, perhaps, or a counselor or several counselors at the local Small Business Development Center. Or perhaps somebody involved in entrepreneurship at a local community college or university can help you find a fair deal.
Whatever you do, don't make verbal agreements. Write it down and both of you should sign it before there's money coming in. And make sure you have a buy-sell agreement too: That's like a prenuptial in a marriage, laying out the terms you'll use to buy one or the other of you out when you get tired of it. That almost always happens, so plan for it early.
Related: How to Find the Right Investor for Your Business
Related: Sample Buy-Sell Agreement