Many folks have discussed the role and value a board of directors can bring to a startup, even very early in the company’s lifecycle. The purpose of a board is not simply to be the founders’ friend… it is to help govern the company and provide input into its strategic direction. Directors have a responsibility to act in the best interest of all shareholders/stakeholders in the company.
Here at NextView, we are strong proponents of creating a board at the seed stage. It is important from a corporate governance standpoint to get things done, whether making key strategic decisions or granting employee options, as well as useful for establishing a cadence and process for founders working with a board (whether investor board members or independents).
As time progresses and startups grow, the board room tends to increase in size for a variety of reasons. In subsequent rounds of VC funding, for instance, additional investors may seek/require a board seat. Decided to proactively add one or more independent board director is useful as well. And various stakeholders (investors, early founders no longer operationally involved, etc.) may also be present either as directors or board observers.
So it’s easy for the board room to become an unintentionally cluttered setting, which at best is cumbersome and at worst counter-productive to a startup’s success.
Along those lines, here are some thoughts on how to “declutter” a board room:
1. Know There’s a Cap to the VC Board Members You (and Your Investors) Want
Good investor board members are typically both necessary and helpful to startup companies. But at some point having four, five, or more investor board members becomes unwieldy. At the seed stage, we typically have three-person boards with two founders and one VC — though as companies grow at later stages, five-person boards and ultimately six- or seven-person boards become more common.
I think having two or at most three VC board members is probably where this should cap out, even for later stage startups. (See #3 and #4 below for how to manage this.)
2. Beware Board Observers
Having board observers can be a very useful thing to do. Sometimes, an observer is an investor who’s a smaller part of a round, and other times it’s a co-founder who is no longer operationally involved. Some VCs also use board observer roles as part of the “apprentice” model for younger partners and principals, where the senior partner takes the board director role but has a colleague participate as an observer.
Whatever your case, at the end of the day, board observers can provide useful perspective and help for companies, so there’s definitely an appropriate place for them, but just be aware of how many people end up in the board meetings. It’s crucial to manage that total, even if they don’t have a formal governance vote, as having 10 people in a room trying to discuss and make key strategic decisions is unwieldy.
3. Set Expectations for Time/Tenure
Thoughtful boards/CEOs will set expectations for the potential tenure of new board directors as they’re added. At NextView, for example, we’re typically on the board of companies we invest in at the seed stage, but we intentionally constrain our board tenure to 1-3 years post seed typically.
Because of our seed-stage focus and our experience as founders and operators, we feel we can offer the greatest impact to startups as investor directors in the early years of their life. We like to proactively mention this fact to entrepreneurs to both alert them to our willingness to help and get our hands dirty early, but also to volunteer our own timetable to make decluttering a board easier for them as the company grows. We’ve stated it to them — we’re likely to step back after 1-3 years. We’ll gladly stay on board in whatever capacity (director, observer, or regular check-in outside the board meeting cadence), but we want to get out ahead of this conversation from the start.
But in all cases, founders/CEOs should try to establish these expectations with other board directors as appropriate, whether they be investors, co-founders, or outside directors.
4. Consider Alternatives to Provide Visibility and Receive Advice
Often, founder/CEOs want the advice from someone (investor, co-founder, outsider) and therefore ask them to be part of the board to get that advice. Other times, investors seek board representation primarily for the purpose of having deeper visibility into a startup’s progress and strategic thinking. And while both of these are reasonable motivations, the outcome can often be achieved through other ways aside from adding a new board director.
For example, founders can setup advisory groups or form 1-on-1 advisory relationships with folks independent of the board. Again just to use my own experience as a seed VC investor: For companies that have progressed to later stages where I may no longer be on the board, I typically setup 1-on-1 sessions with the CEO on a regular cadence both to catch up on the business and to find ways that I can be helpful with recruiting, product strategy, etc.
Additionally, many CEOs will often forward their board reporting materials to groups that are substantial investors in the company but don’t have a board seat. So there are lots of ways for founders to get help and advice — and for investors to get visibility into a company’s progress — without a board director role.
Ultimately, your board exists to help steer the company to where it needs to go, but the nuances of each relationship and the larger group dynamics can often determine the efficacy of the board. But approaching your board construction and expectations through the above facts can help you proactively manage exactly that.