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What does being a "board member" mean exactly?

I had no idea what this role meant when I was first starting out as an entrepreneur. Pretty sure there are a lot of first time entrepreneurs here that are still a bit lost with this. How would you all describe what being a board member really means?

7 Replies

Chris Gorges
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Chris Gorges Entrepreneur • Advisor
Partner, Strategy at Rocketure
https://en.wikipedia.org/wiki/Board_of_directors
Peter Jackson
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Peter Jackson Advisor
CEO
Nishant-
In my experience, it is an important role, if the person has the ability to mature the company by product development, funding, strategic relationships/personnel and or strategy. There is like a time that this person (s) is critical and becomes less critical as time goes on. And, perhaps you replace with new investing VC's or industry experts. If the perceived value is less than you think deserves a board seat, but they are important, add them to your advisory board. In my board roles, I expect to work 2-3 hours a week and as an advisor it's an "on call" responsibility. Set those expectations up front.

Therefore, I like to compensate the early BOD with 2 year vesting options and generally its between 1 and 4% of the company depending on the perceived value. Advisors .25 to 1%.

Hope that helps. Best of luck-

Peter
Clark Quinn
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Clark Quinn Advisor
Executive Director at Quinnovation
Having served on a Board of Directors, you should know that the directors have a fiduciary responsibility. Sometimes they're on the board for specific expertise, sometimes for connections, but in both cases the responsibility is that the organization is doing the right things. It's supposed to be (tho' often isn't) strategic: addressing the questions of whether the organization is paying attention to the necessary factors, and responding appropriately, and is the executive team acting responsibly. And it's also about ethics: is the company working in ways that will withstand scrutiny by the necessary stakeholders. That's been my experience.
Arthur Lipper
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Arthur Lipper Entrepreneur
Chairman of British Far East Holdings Ltd.
Shareholders annually elect the members of the Board of Directors to represent their interest in the company. In other words the owners of the business control the actions of the company as managed by the Chief Executive Officer (CEO). Having asked the question indicates that you have a lot of studying to do before considering the founding of a company. There are lots of books, some of which I have authored, preparing entrepreneurs for business ownership. Best wishes.
Scott McGregor
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Scott McGregor Entrepreneur • Advisor
Advisor, co-founder, consultant and part time executive to Tech Start-ups. Based in Silicon Valley.
The phrase "being your own boss" is misleading. If you are an employee, you sell your labor and you work for the employer will to buy your labor. You may have the ability to make various decisions, but some of those choices are valuable to your employer and they will pay you for making those choices, while others are of no value or even counter to the interest as they will not pay you for them. If you are self-employed, you work for your customers. If you please them, they buy your product or service (pay you) and if you don't please them they don't pay you. Similarly, in order to borrow money, you need to promise to meet certain demands of your lender. These are the terms of your loan and probably include limitations on you designed to ensure the collateral you pledged in case of default remains safe. In order to protect their loan, the lender may assign someone to watch over their collateral. The person watching over the collateral is called a banker. If the person(s) you borrowed from is an equity investor the collateral is the entire company. And the person or persons that are responsible for ensuring the safety of the collateral are the members of the board of directors. They represent the interests of ALL the shareholders, who are joint owners of the company. The management of the company, and specifically the top manager (chief executive officer or CEO) report to the board and can be fired by the board. Since the board exists to ensure the company remains valuable, the best board members are those who can provide connections to suppliers, distributors, customers, and service providers or who have domain expertise to share. Scott McGregor, [removed to protect privacy], (408) 505-4123 www.smcgregor.com Sent from my iPhone
Yaniv Sneor
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Yaniv Sneor Entrepreneur
Founder, Mid Atlantic Bio Angels; President, Blue Cactus Consulting, Trustee, ILSE
Nishant,

There are different kinds of boards, each with their own meanings and responsibilities, and companies form different types of boards for different reasons.

Members of a board of directors have formal responsibilities (and liabilities) and, among other things, are part of a company's governance. In addition to advising, this is where shareholders (who are not founders) are represented.

There are also boards of advisors, which most commonly include two main categories (business and scientific - though there are others). Members of advisory boards do not have the same responsibilities and liabilities as directors, and their duties are more, well, advisory. In simple terms:

A business advisory board may assist the founder(s)/CEO with business strategy, fundraising, opening doors (strategic, sales, etc.).

A scientific advisory board would help credentialize the company's scientific efforts.

The type of board one is participating in determines the type of duties, responsibilities and liabilities that the board member may have.

Yaniv
Tom DiClemente
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Tom DiClemente Advisor
Management Consulting | Interim CEO/COO | Coach
Directors have a fiduciary duty to the shareholders. Given that, the primary function of the board is to assure the integrity of the company in all ways - financially, legally, morally. This is not a matter to be taken lightly. After that, they may contribute to the growth and production of free cash flow in any number of ways, but rarely in a direct manner, except for an inside director, which should be limited to the CEO.

In any company though, directors may be chosen for their particular skills or experience and a company may try to assemble a synergistic mix. In an outside funded startup in particular, they will likely represent holders of large blocks and likely preference shares. Directors who represent a VC or other PE firm may also have a duty to their limited partners to exert management rights in the company. This does not mean they take a management role in the company but that the terms of their investment gives them extraordinary powers over many decisions. In these cases the director may be walking a fine line between his fiduciary duty and his duty to his limited partners in the investment.

For all the above reasons, directors must be chosen who understand their duties and are capable of dealing with the potential conflicts with which they may be faced.
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