When VC’s invest in tech businesses, it’s important for they have a seat on the board of directors. This is not unique in that, startups will find that most venture investors ask for a board seat. There’s a good reason for it: the board is responsible for supporting the business in making strategic decisions, such as fundraising, hiring or firing key people at the company, prioritising development opportunities or selling the business when it’s ready. Here are the five elements of a successful startup board:
The purpose of the board of directors is to both support and challenge executive management teams to enable them to achieve their potential as they grow their businesses. Directors direct. They identify destinations, set goals and measure progress. They advise on strategy and guide management teams through the ups and downs of growing a business.
The typical structure of a board includes a chair, a number of non-executive directors, and at least the CEO of the business, but should ideally include other executives as well.
There is no right answer for the number of directors, but as a general rule, an odd number can prevent the risk of a tie if decisions come to a vote. The roles of the people include:
· The chair’s primary role is to manage the board, ensuring that board meetings run smoothly, intermediating between executives and non-executives and holding individual directors including the CEO accountable for their performance.
· The CEO communicates information to the board about company performance as well as challenges and opportunities to equip directors with the knowledge needed to take decisions effectively.
· Other executive board members, such as a COO or CFO, contribute to this upward information flow and represent their specific areas of delegated authority.
· Non-executives should not only attend every board meeting, but also dedicate sufficient time to prepare for the meetings to be able to ask meaningful questions, celebrate successes, highlight concerns, and offer help.
Finally, boards should agree upon a regular schedule for meetings, with each meeting following a clear agenda. Portfolio companies will probably meet monthly, for at least two hours.
Board meetings are only as good as the information shared within them. The management team should compile a consistent board pack for each meeting. We think that board packs should, at a minimum, contain:
· The minutes from the prior board meeting, and follow-up actions that had been agreed.
· Management report with information that has changed since the previous board meeting, i.e. updates on development, sales and commercial performance, customer experience, hiring.
· Management accounts for profit and loss, cash flow, and balance sheet.
· Performance on agreed-upon impact metrics according to the impact plan for the business.
· Any other ad hoc items.
An Open Culture
Executive and non-executive directors (NEDs) should work together to build a culture of trust to allow for open, honest, and sometimes difficult conversations with a clear understanding that everyone involved has the best interests of the business and its stakeholders in mind.
We have seen businesses thrive when the executive and NEDs on the board are engaged and aligned on the strategic direction of the business, and we have seen them falter when the board splits into factions. It is incumbent upon each person to commit the time and energy needed to make the board work for the benefit of the business. The effectiveness of boards ultimately comes down to the people!
If you would like to chat about startup boards request a callback with us.