“A good board meeting might last two to three hours, but it can create significantly more value than any two to three hours you will ever spend elsewhere on the business.” That’s how highly William Reeve, a serial entrepreneur and investor behind companies like LOVEFiLM, Secret Escapes, Graze.com and Zoopla, rates the value of a good board.
As the founder of an early-stage company, building a board may not feel like a top priority. As William points out, there are huge benefits in doing so. But tread carefully – in a KPMG study, only 55% of founders said they would choose the same board if they had their time again. Satisfaction dropped across funding rounds, with Series C+ companies twice as likely to say they wouldn’t choose the same board as seed-round stage companies.
Patrick Dunne – a highly experienced Chair, director and author – wrote that boards exist to ensure “there is the right vision, purpose and strategy as well as the right resources and governance to achieve them. Their key roles include:
1. To advise, support and challenge the leadership on their strategy and execution of that strategy.
2. To make sure the company acts in a responsible way.
3. To guide the company through major decisions such as a merger, acquisition or other exit.
4. To hire and oversee the performance of key executives.
5. To approve annual budgets, pay and stock options.
If the board members carry out these duties properly – and if executives take advantage of their support – then the impact can be enormous (read more about managing a board here).
“It's that old phrase – if you want to go fast, go alone, if you want to go far, go together,” says Linda Grant, Chair of Virgin StartUp. “The reality is that it doesn't matter how stellar a founder you are, you don't have all the skills, all the experience, all the abilities to help grow that business. No one does.”
The earlier you can bring in a board the better. “You don’t know what you don’t know, and I think that is one of the key things of a board early on,” says Tamara Rajah, the founder and CEO of Live Better With. Simon Guild, who’s sat on more than 20 boards of new companies, agrees. “Sometimes you’d be surprised by what blind spots exist in early-stage businesses. Bringing in someone senior can head off some of those blind spots before they become a problem.”
Your board will evolve as your company does. Typically at Series A, investors will insist on having a board seat, and you want a structure in place by the time you get to Series B. The size and make-up of the board will change too and you should think about the balance between founders, investors and independent directors as the company passes through the fundraising stages. Avoid having too many people around the boardroom table, as this very quickly creates tensions and a lack of focus. The slide below sets out some models to consider.
1-2 x Founder(s), 1 x Seed investor, 1 x Independent
1-2 x Founder(s), 1 x A investor, 1 x B investor, 1 x Chair, 2 x Independent (plus Observer/s)
1-2 x Founder(s), 1 x A investor, 1-2 x Independent (plus Observer/s)
1-2 x Founder(s), 2-3 VC investors, 1 x Chair, 2 x Independent (plus Observer/s)
According to Christine Cross, the Chair of Oddbox, the most important thing for board members is that they buy into the founders’ concept and vision. They also need a willingness to roll-up-their sleeves, an open and collaborative mindset, coaching and mentoring skills, and, potentially, a network that can open up opportunities.
Common skills we see required for start-up board roles include:
Board experience at a disruptor – Experience at C-level or Non-Executive Board-level, in a successful market-disruptor business e.g. Uber, Fever Tree, ASOS, Dropbox etc
Growth fundraising – Demonstrate a track record of raising finance in a growth business, including developing successful relationships with investors and leading the company's fundraising strategy.
Merger or acquisition experience – Experience leading or advising organisations in merger or acquisition processes, including evaluating potential targets, due diligence, negotiation, acquisition and integration.
Consumer brand expansion in the UK and internationally – Experience in a leadership role of scaling a consumer brand business in the UK and internationally. Candidates will have a strong track record of maximising growth opportunities across multiple markets.
Increasing enterprise value / exit experience – A recent and proven track record in helping companies increase enterprise value, ideally having led a company through a successful exit event.
It’s good practice to set clear expectations of the commitment you expect from your board. Start-ups and scale-ups move at a fast pace, and so you want board members who are both committed to the success of your company and available when you need them – sometimes at short notice.
Specific domain experience is less crucial, Linda Grant believes. “I think that too many people think about domain expertise rather than a broader understanding of skillset, knowledge, experience and contribution to the dynamics of the board,” she says. “If you identify someone who can help your company in a very specific way, a better option could be giving them an advisory or consultancy role, rather than putting them on your board.”
Think about the different personalities and styles of the people that will sit round the board table. A recent study of US start-ups found that the average size of their boards at first financing was 3.6 people. This intimacy can be intense. Sarah Harvey, an independent director who works with growth companies believes it’s crucial to get the interpersonal relationships right.
“It’s really important that boards gel on a human, personal level. Being on a board is an unusual environment, as you are all in the same room at the same time so seldom. It’s all about creating a dynamic.”
It sounds obvious, but think carefully about what support your business needs. “This involves coming up with well-defined and legally constructed roles and responsibilities for the board in overseeing financial plans/operations or making business decisions,” Surien Dutia wrote in his primer for start-up boards.
Don’t add people for the sake of it – map out how the board will function and interact with the rest of the company. “Clearly defined roles establish the proper channels of communication to address issues during conflicts and promote transparency throughout the organisation,” Dutia explains.
Run a proper process when hiring new board members. Be clear about the skills, competencies and experiences you need and create a role spec against which you can evaluate candidates. It might feel overly formal, but taking the time to find the right people will make all the difference.
Investors will often request a seat on the board, but it’s important to understand how this can alter the dynamics. Simon Guild spends a lot of time helping founders see that an investor’s main loyalty is to their fund, which shapes their advice. “That’s not a bad thing, it’s just the reality and it’s important to remember that as a founder,” he says.
In his book Startup Boards: Getting the Most Out of Your Board of Directors, Brad Feld highlights the value of bringing in independent voices. “I like to keep boards small and weighted toward outside directors as the companies grow, rather than just a cadre of VCs sitting around the board torturing the CEO with conflicting advice and opinions,” he writes.
For Christine Cross, having independent directors on the board “drives better governance and decision making.” Tamara Rajah agrees. “Their skin in the game is different and their advice is very impartial.”
In their 2020 study called Board Dynamics over the Startup Life Cycle, researchers Michael Ewens and Nadya Malenko looked at data from more than 7,000 US start-ups between 2002 and 2017. They found that 31% of companies at their first funding round had “true unconnected” board members – that is people with no obvious link to either the founder(s) or the investors. This number went up to 51% for fourth round companies.
The study found that these independent board directors play a hugely important role by mediating between the other stakeholders, and casting the deciding votes when disagreements arise, for example over merger plans say or replacing the CEO.
It’s also important to think about diversity when building a board. You want people around the table who can bring different perspectives, and reflect the diversity of your market. But in the start-up world, board diversity lags way behind.
A study of 200 US venture-backed companies found that start-up boards are “incredibly homogenous.” Women held just 7% of seats, for example. With much smaller boards than PLCs – and sometimes just one hire to sit alongside the founders and investors – early-stage companies face different pressures when it comes to diversifying. But there’s clear evidence that more diverse boards perform better, so think about the different ways you can add diversity, from gender and ethnicity to background and skillset.
It may even end up becoming a shrewd investment, as Linda Grant explains. “If you are thinking about an exit, I genuinely think that a lack of diversity can erode the value of a business.”
Take the time to build a board that works for you. Think carefully about what you need and let that shape who you hire – don’t start with the person and look for a way to fit them in. Bringing in the right people has the power to supercharge the way your business works – but bringing in the wrong people can get very messy, very quickly.
