How to Maximize Value from Your Board of Directors in Startups
- A founder guide to managing an effective startup board from StartupTalk #21 @ PreSeed Academy
ABoard of Directors (BoD) can easily turn into a founder nightmare with timeconsuming nitty gritty reporting and long bla bla bla meetings with no action. Yet if done right it’s a badass power tool and life jacket that no founder would be without.
In other words with the right composition of people and competences having the experience, insight and network of a BoD at hand as you scale your business, is an invaluable asset. With the right strategies, communication and processes you can really maximize that value.
At PreSeed Academy, we recently hosted on of our StartupTalks on what is necessary to run effective and valuable BoDs in startups. If you’re not much of a reader you can Watch the full talk online, but we also turned the most valuable learnings into a quick guide here to help you run your BoD like a pro.
Know When You Need an Advisory Board vs. a Formal BoD
Being a founder can be a lonely position, with few people to confide in when testing new ideas and concepts, or to support founders on the mental rollercoaster ride it is to start a business as we addressed a few months ago.
Building a trusted group of experts is vital to building a successful business. Many founders thus turn to establishing either an advisory board or a formal BoD. Each provide significant value to a company, yet they are designed with two different purposes. So, what’s the difference?
The quick answer is: An advisory board has no formal roles and no formal power, and the members are chosen by the CEO based on a targeted expertise or specific background. An advisory board is something you typically create to get input, network and clout.
On the contrary, a formal BoD are legally bound to represent the shareholders of a company in a fiduciary manner, and are liable for their actions. They have decision power — even to fire the CEO as what happened to Steve Jobs in 1985, after a boardroom showdown over the direction of the company.
A Board of Directors is a Dynamic Organ…Use it to Your Advantage.
As your business grows, your challenges will change and the competencies and support you’ll need from your BoD will change accordingly. Therefore, the members of your board will inevitably have to change too.
With that said, don’t overthink the BoD — no decisions or hires are definite. Get started and learn along the way, except maybe for composition.
BoD Composition Should Be Your #1 Priority
To get the most value from a board, you must make sure different competencies are represented in the BoD. Board Member Jesper Holm Valentin from Qvest.io recommends mapping the current and needed competences to work with the composition strategically.
Also, value time and dedication over personal brand value when it comes to choosing BoD members. As founder and CEO of Airtame Jonas Gyalokay explains:
You quickly get caught up in how cool your BoD-slide in your pitch deck can become. Don’t fall for that trap, because you need your BoD much more than a fancy slide. They should be able to dedicate time to help steer the company.
Be structured, aligned and have fun
You’ll get the most value out of your BoD (and meetings) by structuring your communication. Don’t spend precious meeting-minutes catching up to date; it’s boring and a waste of time. Send your BoD updates continuously or ahead of a meeting, and go straight to the problem-solving and business developing parts.
Also, don’t forget to have fun. Invest in your BoD by spending time with them in an informal way. And despite its reputation for being, well, lame, team building is known to form positive relationships by building valuable trust, improving group dynamics and encouraging communication.
Forget about monetary board compensation
A frequently asked question from founders is about BoD compensation. The short answer is: no cash — at least at first. If potential candidates are asking for money up front, that is an immediate red flag: The people you want onboard at the pre-seed and seed stage, should be incentivized by the journey and not by green faces.
With that said, offering a lucrative investment opportunity or a warrant program for the board members who’re in it for the long run should be considered. Mads Klarskov Petersen, our COO and Director of Talent at PreSeed Ventures elaborates:
I really recommend that you start by checking if the commitment and chemistry is right between the CEO and the chairman. Then, after a due diligence period of 6–12 months, you start talking about whether the chairman wants to invest in a small ticket, in which he or she gets a good deal on that. We typically see equity sizes ranging from 0,5–2,5%- vested over a long period of time.