In a high tech venture, typically in exchange for a substantial capital investment in a company, institutional or large early stage investors that lead a round of financing will demand a board seat. Prior to the close of the initial round of financing, limiting the board to only the founders is possible. I can't speak to the specifics of Jack's concern over having board members, but it is a given in virtually any high tech start-up, so founders and executives need to develop their skills on working with outside board members effectively rather than viewing them as opposition to their plans. The issue of control becomes less important as a company raises more financing and the founders control less than 50% of the company, which is not uncommon either following a Series B or C financing.
It is true that some boards have a bad relationship with their founders. It has been my experience that there are really good boards as well. Saying "don't have one" kind of misses the point.
A board should be a set of folks who help the executives work through the toughest challenges in the business. In the early stages of a company it is pretty typical to only see one outside board member, and a larger leveraging of advisors. But you should be very careful with giving away a board seat. If a VC is coming to you with rampant demands, probably a sign that they would be a pretty bad board member to work with. If you really like discussing strategy and taking advice from the VC, then a board seat will seal their involvement and interest in your company.
Of course, if your business starts to fail, it's the board that has the fiduciary duty to their investors and will often work to protect them.
As he observes, "Jack Conte's video catalog gets a million hits per month, and that generates less than $50 of ad revenue to help him pay the bills." Revenue / control / growth are all different issues and depending on what mix you want, you can design it to suit your requirements.
Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.
There are a few major themes here:
First is governance (how your company makes decisions) and control (who gets to participate in those decisions). As others have pointed out, when investors put their money into a company, they often do so with the stipulation that they get some input into the decision making process. As more people become involved in making decisions it becomes increasingly important to agree on and document the way that those decisions are made (governance policy). I've seen many early-stage companies fail to spend sufficient time and energy on getting their governance policy right.
Second is working with external investors, board members and other parties. It's critical to set the stage for productive working relationships "while we're still friends" since it is nearly certain that your business will go through difficult times when relationships will be tested.
Generally board members are responsible for the stability, financial health, and maximizing the profitability of the company. If you have broader corporate goals you may want to look at some of the variations on benefit corporations that may be available based on the state in which your enterprise is organized (but that's a different question).
Oh yeah, and almost ANYONE can screw up your company - a co founder, a customer, someone you've never met with spare time who wants to experience what it's like to file a lawsuit. Best defense - good relationships and good good processes.
This is a place where external coaching/consulting/advisory help can be important. Too often founders, investors, and other involved parties think they can save money by "figuring it out for themselves" ... it's easier to avoid a problem than to fix many.
Managing Partner Digital Health at Life Science Angels
A point of clarification - board directors have fiduciary duty to ALL shareholders, not just the subset that elected them. As a practical matter, a partner of a VC firm with millions at stake will look out fir their interests. Still, their legal responsibility is to all.
A good board can add great value, and a bad board can be destructive. A good board starts with selecting good people (yes, you can sometimes influence who from the vc firm sits on your board). Then good CEOs expend significant effort in board management (the results are well worth it). CEOs who view their boards as burdens are in trouble from the beginning. They are throwing away a valuable resource.
Independent Venture Capital & Private Equity Professional
(1) Board membership almost always required when investors are involved; (2) independent board members are good advisors and/or subject matter experts; (3) independent board members speak truth to power; (4) Inedependent board members provide focus and moreover discover when the CEO/founder is tap dancing.
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Guest Services Sales Representative at America's Keswick
In the non-profit sector boards can be as much of a help as hindrance. As noted in one of the other commentators, governance style needs to be determined. The operational board, (hands on, daily decisions on maintenance to promotions) needs to hire a manager type person to be on site. The Policy Board (sets policy & goals) should hire a director type person to handle daily details. The hired leader who is under the impression he is the director when the board thinks they are operational is a mix for failure. Likewise the opposite is true. The board needs to decide what they are going to be then hire accordingly. With the right combination the Board can be a valuable asset to the progress of the organization.
We have only had a board of directors for a (single) public entity. Otherwise, all of our ventures have employed a board of advisors. The difference? The board of advisors have two charges- one is to serve as a sounding board- and a correcting voice when necessary- to the firm's executives. Thesecond chargewas the continuance (i.e., profitability) of the enterprise.The boardmemberseither had real or virtual stock in our firm; that meant they accrued dividends from our profit sharing plan (25% of corporate profits before taxes).
Boards can be good and bad. Some states require both officers and a board of directors to be disclosed in their filed corporate charter, some do not. The bylaws define the number of officers and directors, term, term limits, authority, process of election, process of removal, etc. So, first check with the state you intend to incorporate in to determine if public disclosure is required. . LLCs have "managers", not boards and they are controlled by the operating agreement. The problem with boards clearly becomes individual member's egos, their way being the right way and the only way. Other problems become officers acting without the authority of the board or outside of their scope of authority pursuant to bylaws and corporate policies. Boards also have to understand if they are expected to be a working board or a silent board. A working board means board members role up their sleeves and actually do things. A silent board means that they show up and just ratify all previous corporate action and don't as much as want to lift a pen. My experience is that working boards are best, the silent board is where individual gratification egos take over to outweigh the overall benefit to the corporation. Fiduciary duty? What's that; it's completely ignored today because everyone knows everything. If you do select a board/manages, be very, very careful as to the personality type you select and the type of board you want to create. Good and best of luck.
President & CEO, Marketing, Management & Health Care Consulting, LLC
Totally agree with the majority of the comments. Board members can lend incredible insight, based on their respective expertise to an organization. Different roles and relationships depending on if the agency is non profit or for profit. The key is governance. Fiduciary responsibility is the other pertinent factor. I have worked with working boards who have been extremely instrumental in fund development for large projects. In other circumstances, you don't necessarily want board members involved in the day to day operational aspects of the organization. Again, the importance of having board members is their level of their respective expertise, network and net worth that your agency can tap into to complete its mission.
Jul 08, 2016
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