Startup Board of Directors: Things to be aware of

So, you are embarking on raising that first round of investment.  At this stage, it is highly unlikely that you will have formed a startup board of directors.

So when it comes to forming a startup board of directors – what do you need to know?  For starters, you can’t round up your 6 best mates and call them Non-Executive Director (NED) 1 to 6 and appoint yourself as chief!

The primary focus of the board is to make decisions that are in the best interests of the company, and ultimately the shareholders.  As the CEO you will have a place on the board and it’s your responsibility to inform the rest on what is, or what is not happening, in the company.

So what does the rest of a startup Board of Directors look like?

Well, it varies from company to company and it can be defined or outlined within the Shareholders agreement you will imminently be required to sign.  However, non-investors/non-shareholders can also be present on a board.

In general, there will be a combination of the following:

  • A chairperson who will be appointed prior to, or at the first board meeting
  • A company secretary, although these are not always appointed as is not required by law (in the UK)
  • The company CEO and other executive directors in the company
  • NEDs representing an institutional investor/VC
  • Independent NEDs
  • Observers

The shareholders agreement can stipulate the quorum for a board meeting.

Quorum? No, this is not the latest meat-free alternative endorsed by Mo Farah, it is the minimum number of board members that must be present for the board meeting to proceed.  For a startup Board of Directors this number is usually low and dependent on the total number of people on the board.  Make sure you know what you can and cannot do in relation to your board meetings – following good corporate governance at this stage can make it easier for the next stages of growth and development and when new members are appointed to the board.

So, do you get any say in this pick ‘n’ mix of board members?

Or do you feel like one of those liquorice flavoured midget gems that fell into the bag by accident and you have no idea why you are there and everyone automatically hates you?  Well fear not, you are not there by accident – your ambitions have exceeded those of your former judgmental class mates and you have chosen to embark on realising your dream, your very own startup that will one day achieve world denomination.  However, you are probably right to feel a bit overwhelmed in wondering what your new role will entail what your new board members will expect.

Board selection starts sooner than you would think and this often goes un-noticed.  As a startup operating on limited finances it is understandable that the focus is on the prize – pitching the company to raise that seed round.  Unknowingly, those people that you are pitching too are not only potential investors, but also your potential future board members.  They represent the individuals that may be asking you for answers in the not so distant future.

So, what am I trying to say?  Ever watch dragons den?  That moment when they ask the companies pitching – out of all the dragons which one would they want to be involved the most?  *Awkward* And although it seems as if the only reason for asking such a question is to make them feel the same size as a jelly bean and descend them into panic to the point the only thing they can focus on is how over sized Hillary Duvets shoulder pads are …. this is not the primary intention.  What is really being asked – “have you thought about the kind of investor you want involved in your business?”  Well, have you?

An investor brings capital to the table … every start-up will need this to scale.

However, when you take their money – does it have conditions?  Is one of these they want a seat on the board?  Not all investors will want a seat – but when they do you need to understand what else they bring to the table, what avenues can they potentially open up, that you couldn’t on your own?  Do they have areas of knowledge or expertise that will be useful in your business?  Will you be able to work with them or will you be having a punch up by the end of the first board meeting? Are they asking to be remunerated – is this remuneration aligned with the value they are going to add or is it excessive?  Do you think they will support you when it comes to difficult decisions?

A startup Board of Directors can be an exceptionally powerful thing to have and don’t be fooled, they can out vote you on decisions.  So, if you have an investor, offering you the investment you want and asking for a seat on the board but you know you won’t get along, you know they have a different vision, a different strategy, different agenda – then maybe you need to look for another investor, regardless of how hard it is to walk away from securing that first investment.

You are only starting to build your company – figure out what your needs are, make sure and ask the right questions at this time and aim to get the right kind of people sitting around your board table at this stage of your company development.

Nuvem9 work with companies seeking to take on investment by providing top class financial modelling, business planning and pitch deck presentation advice.  If you would like more details on how we could assist your company through this process contact us using the form below this article.

Jacqui O’Doherty

(image credit: Ryan McGuire – gratisography.com)



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