Board Governance

Board Governance

For your startup, should you have a Board of Advisors or a Board of Directors? That depends on the stage of your company and the objective you have for the Board. At least until you take outside investment. At that point in time your objectives are subordinate to the shareholder – which you are one of as well.

Many startups try to buy early credibility with names on their board of advisors. Though you may get some Social Proof for your startup, you’ll end up giving away more Advisory shares or options for a very limited value. Before you make this first-time founder mistake, here’s a framework to think about the timing of a board and roles.

Advisory Board

An Advisory Board has no official duty to the shareholders. The usual duty is to support the founder in the team for industry or skills and tasks. For example a sales or marketing expert.

  • Who – Industry, Stage or Skill oriented advisors in areas you don’t have experience. If you are in a unique industry where expertise is required (3D manufacturing using CAD design). Early stage, growth stage or exit stage can require a different set of advisors
    • All stock should have a vesting schedule and a set of expectations – e.g. if they quit adding value, they should no longer get paid through ongoing vesting.
  • What – Help on strategy, goals, and introductions. They are typically only occasionally involved with business (not daily).
  • When – Ad-hoc calls and regularly scheduled meeting schedule. At least quarterly with a structured agenda.  They should review documents in advance so the conversations at the meetings aren’t the founder reporting – but actually getting advice.
  • Why – it will help you and the team keep your focus on the what you said you were going to do last quarter and report on it this quarter.

Board Members

A Board of Director has a fiduciary duty to all shareholders. consequently, they are elected by the shareholder. The officially vote the shares that they represent, however, they have to vote in the interest of all shareholder.

  • Who – Investors, Industry oriented advisors. This should be a group of people that have an interest in the outcome of the company. However, I’m not generally a fan of other founders being on the Board. As a founder team, you’re going to debate nearly every decision internally. You should all be “all in” already and you won’t see additional value of having them officially on the Board, but yes to having leaders at the Board meeting is important
  • What – Help on strategy, goals, and introductions. They are typically regularly involved with business (not daily).  Think nose in the business but fingers out of the business.
  • When – Quarterly Board meetings, more frequently during transactions (investment, selling, buying). Calls as needed.
  • Why – Having an investor means you need to deliver in a structured way, and knowing that you have a meeting every quarter to deliver on what you promised last quarter has great value. In addition to driving a deadline, you can take advantage of their expeirence and contacts.

Dave’s learned governance from the ground up as a CEO in 1998. Working with both Angel and Institutional investors helped prepare Dave for future roles understanding both shareholders and stake holders of a business.

Today he serves on the Board of Directors for four companies and the Advisory Board for dozens of Startup companies.

Dave does not do public company work. Contact Dave for information about Board work.

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