A key (and often undervalued) element in a startup journey is the makeup of their board of directors.
We recently held a Fireside Chat with the YV Community and Greg Chiappini, focusing on how to build a startup board and what characteristics an effective startup board should have. This is what we learnt.
At the beginning of the startup journey, the founder will usually be the CEO and will also own most of the shares in the business. This means that the need for an effective board is less of a priority, and something that is often overlooked. However, having a strong, diverse board with expert advisors from the get-go is highly valuable. When executed well, startup boards can help coach founders and provide unique business opportunities via their networks.
Who Should Be On Your Board
Chairman
The Chairman’s role is to ensure that the board is effective in its task of implementing the company’s direction and strategy. They will moderate board meetings, deciding which issues to prioritise and ensuring that all board members contribute and engage in productive, balanced, and fair discussions. At the end of the board meeting, the Chairman should steer the conversation to a consensus and sum up any decisions taken.
Executive Directors
The Executive Directors (e.g. CEO, CFO, CTO, COO) are agents of the company, appointed by the shareholders and employed by the startup. They have management responsibilities for running the company’s daily business, and have the power to influence strategy and decision-making. Executive Directors have a fiduciary duty to act in the best interests of the company, and they can be held personally liable for any malpractice.
Non-Executive Directors (NEDs)
NEDs are experienced professionals who have a wealth of experience, gained over a number of decades. They often have useful contacts that can help founders develop their business. NEDs are impartial and cannot be managers, investors or employees in the company. As a result, they are able to look at things from a fresh perspective, prioritise what to tackle first, and make decisions in the best interests of the business.
Investor Directors
Investors will often want to take a board seat to protect their investment. They can bring invaluable experience in securing follow-on funding and ensuring an alignment with other investors. However, it can be dangerous to have a board that is weighted too heavy with Investor Directors because investors may be inclined to make decisions in their own interest (rather than in the best interests of the company).
An investor may alternatively choose to take a Board Observer seat, to avoid the fiduciary duties, liabilities and risks of being a Director. Observers are allowed to participate in board meetings and to receive all information provided to members of the board, but they are not allowed to vote on any issues.
Characteristics of an effective startup board
Market experience
The key is to look for experienced board members who have been around the industry for a few decades. You want somebody who will not only help you navigate the rough startup terrain, but also bring a strong network and contacts in the market that you're looking to capture.
Not afraid to speak up
Consistent and constructive discussions are at the heart of an effective board. There is little use in having a board member who is quiet and fears speaking their mind. When building an effective board, look for people that are not afraid to explore uncomfortable topics and really get to the heart of a problem. You want to be challenged.
Available
Startups move at a very quick rate and your board members need to be responsive and available. They need to be (within reason) committed to returning your calls and emails in a short timeframe. The best board members should be able to help you put out fires, understand where you went wrong, and assist you with planning your next steps.
Adds value
An effective board member should be able to add real value to a startup via introductions to their network, potential customers and partners. Every board will run a little differently but board members should also be able to add value by getting involved with the interviewing of key hires, coaching senior management, speaking at sales events, assisting with securing financing, and everything else in between.
Are you a startup looking for support in building your board? Get in touch: hello@yachtingventures.co