We recently met a person through our contacts and he has shown interest in our startup & super liked the Idea. We had initially requested him to be our mentor, for which he agreed. In our next meet he suggested that he is willing to extend his support more than mentor and shown interest to be board of director.
He hasn't made any investments or any contribution so far but has very good contacts in private, government and our industry related network. He suggested that we can use his name to present or promote our product as one of the board member, which he claims can trigger sales with other 2 mentors. He has good contacts with angels, VCs and also assist us in the business idea compitions and so on.
He also said that he would not mind and still be our mentor if we are not making him director, but if he is made part of our company then he can put lot of efforts and do lot of research. Find the partners, find potential clients, get clients, speak to investors, spread the company name and make brand in the market.
About us - we are co-founders doing everything now, but of course looking for people like these.
So he can be director or should be advisor? what is the compensation or stakes/percentage he should be allocated, if at all?
Sounds like a new relationship. I would recommend developing and cultivating that relationship -- providing that it is one that both you and he would like to continue before formalizing it into a board position.
The Board represents shareholders.
If he is not a shareholder-- then he will be representing you equity interest in the company. Before you give him that responsibility you need to be sure that he has both earned and learned the ability to represent your interests.
Now, if he becomes an investor . . . .
I would set up a board of advisors. This means you could bring him (and others who could make a strategic contribution) on board and develop those relationships. When you are looking for funding you could offer the investment opportunity to your board of advisors and they could choose to become investors (and perhaps formal directors) at that stage.
Meanwhile you need to work out how you can recompense and incentivise your mentors for the contribution you want them to make. If you don't think you will call on them too much, taking them out to lunch and paying when you want to have a conversation may be ebough
Anyone that you want to make a strategic contribution will need to be incentivised in some way.
If you pick advisors whose interests are aligned with yours, it should be possible to work out some way to involve them that benefits them and the startup