How boards are constructed and how you can be a value add
You made a VC investment into a startup. Congratulations! If you led the funding round at a Series A or beyond, you would likely take a board member role. Sitting on the board provides specific control permissions that you wouldn’t otherwise get in the form of a vote. Beyond that, a position on the board is a way for investors to provide value and guidance to founders growing their company. Today we will talk through how startup boards are structured and how to be a good board member.
You may think that a board will be a very structured, formal, and organized setup, which is likely the case in a large public company. Often in a startup, this isn’t how things are, at least at the beginning. Meetings will probably be informal, disorganized, and spontaneous rather than having a strict agenda. As the company matures and adds more board members, the structure ends up developing.
Corporate boards of private startups typically have three types of members:
- Founders: This is sometimes just the CEO, but can also include Co-Founders
- Investors: The angel investors or VCs who invest in the startup
- Independents: People hired by the company to be an outside voice representing all shareholders’ interests. These individuals are typically domain experts or have experience in the market the company is trying to serve.
Boards can vary in size, but the typical pattern is three seats for an early-stage startup, five seats when the company begins to scale, seven seats for late-stage startups, and up to 9 when ready to IPO.
How to Add Value
In general, the simplest things you can do as a board member are providing advice, discipline around reporting, and candid feedback on the business.
In terms of advice, it’s important to remember the CEOs position in running a startup. They are typically wearing multiple hats (if not all of them) and focused on the day-to-day operations of building the business. As a board member, you have the luxury of having an outside perspective and likely more experience than the founder. You can help the founder see the bigger picture and provide context around their daily activities.
On discipline, as the company continues to scale, it may be tempting to push off board meetings. Also, as the founder focuses on the business’s operational side, they can lose sight of the critical strategic input a board meeting can provide. Holding the founder accountable for having the board meeting and preparing for it ensures that they understand their company’s core metrics, where they are heading, and their overall strategy.
Lastly, a board member should provide honest, straightforward, and thoughtful ideas, feedback, and advice to the founding team. Not only can you give this to the founders about the company, but you can provide this to the board as a whole. The board is also a team, so getting everyone to work together collaboratively will ultimately benefit the company.
Beyond these basics, much of how a board operates depends on many different variables. Each company and board has different demands at different times. Each board runs differently, and how well it runs will determine how effective each member can be. Also, as the company grows, the board’s composition will change along with the companies objectives. These things are essential to keep in mind, but overall the above advice will ring true for most of the company’s life.
This story is from Sutton Capital contributor Zeb Hastings. For more information on Zeb’s work, please visit his website.