Advice on recruiting a board

John Naylor Independent Media Consultant

June 11th, 2016

An investment partnership is running their slide rule over my start up and have asked whether they'd get a voting seat on the board.

My plan is to found a DE C Corp but have not yet done so.

It's important to me that the board is supportive and brings real value in terms of contacts, advice, coaching. It's also important that the majority are "on my side" as long as I don't screw up.

My plans are initially fairly modest growing only to 4 employees over the first 12 months post funding, with around $750k revenues at 90% GM.

So. questions:

1) how many people is a good number for a board of a company starting this small?

1a) what's a safe/achievable majority?

2) as CEO I assume I'm a member

3) I assume that members can be found that don't need much/any remuneration in the startup phase

John Currie ITERATE Ventures - Accelerating Science & Technology Ventures www.iterateventures.com

June 12th, 2016

John, a "governance" Board at pre-revenue stage is different than one at post-revenue, and then again "scale. You're absolutely right about contribution and being supportive - but you've got to dictate the conversation how you define that. At each stage, you are looking for the right people to get you to the NEXT stage.

To answer your questions, at the pre-revenue stage:

1) 3 or 5. You want to keep control (actually at all stages). Your objective is VALIDATION of Product-Market Fit. Find experienced executives that will accomplish this.

2) Of course. It gets more difficult if there are 2-3 co-founders. Do they also get Board Seats?

3) Executives want to work with the best people and companies. You have to convince them that your company will be one. I don't agree that "executives don't expect much remuneration". There should be an understanding of how you value the equity, how much you are giving, and how much time they are investing.

The smartest early stage CEO's I know recruit the most experienced, highlest profile, angels and executives they can. They are recruited for their experience, not that they can write the Series A check. This exercise is a great test of your ability to convince a high profile "stranger" that you are the next big thing in their space.

Hope this helps, will be glad to share more offline on this recruiting process.

John

Jim Scott CFO * Financial Growth Accelerator * Virtual Company Architect

June 13th, 2016

If you have an investor requiring a board seat you would want a 3 person board, with yourself and a trusted adviser as the independent member to fill out the board. But until that requirement, keep it to 1, yourself.

Scott Ling CEO/Founder @InstantAPI - Investor of time and knowledge to BitAngels - Lean/Agile Mentor

June 16th, 2016

For your request smaller the board the better

Some general notes on boards.

Board size odd numbers always to stop a roadblock decision 1, 3,5,7. (yes in some situations you can have a single board member)

Try to keep board as small as practical, gets harder when adding new members due to VC or other investment

Expect to review board members yearly. (ensure board agreement documents this)

Expect to change your board members as the company grows

Try to avoid giving equity (in a small company you may have to - to get a name for market credibility - but over time that will change)

Most companies end up with 1-2 board seats from the company all others from investors or external board members that add value you don't have in the company

Finally, I would advice against an advisory board - esp. for a small company - far better to find some mentors to talk with and get feedback - plenty on this site after all

Ian Shearer Executive Chairman at Parakeetplay

June 14th, 2016

A couple comments.

1. The investor is asking whether his investment will get him a board seat. So it sounds like he would accept the answer of "no". If he accepts that answer then just have a one man board with advisers as necessary.

2. If you end up agreeing to give him a board seat I suggest you also seek to appoint a credible individual as Chairman. This person should "manage" the investor and keep things smooth as well as adding value in terms of experience and contacts.

3. A dysfunctional Board is a disaster, even if you control the votes.

4. I presume you will have a majority of the equity so you can always fire board members if necessary.

Darius Lahoutifard

June 15th, 2016

You don't need a board yet. Try to keep it simple. You can incorporate a DE C Corp with just you as CEO and the sole board member. It makes a lot of things easier.

Even when you have an investor, unless they force you to get on the board, you can stay with just yourself. If they do want a seat, then you have to add a "friend" aka independent adviser so that you have 3 board members.

In one case I raised $500k and didn't include the investor on the board, instead I gave them a commitment for detailed monthly report/meetings. This worked well for everyone.

Michael Meinberg Teacher (iOS Development) at The Mobile Makers Academy (A Hack Reactor School)

June 11th, 2016

1) how many people is a good number for a board of a company starting this small?

Depends who you find and how they can contribute. Your investors will probably have a board seat, that is normal.

1a) what's a safe/achievable majority?

2) as CEO I assume I'm a member

Of course you will be on the board, You are the founder and CEO.

3) I assume that members can be found that don't need much/any remuneration in the startup phase Most board members in startups don't expect compensation, they are in it for the end game.

Roy EA Helping Clients Build Products, Processes, & Profits| Adjunct Chief Financial, Research, or Operations Officers|

June 12th, 2016

Given the fact that you plan to have FOUR employees, then your board should not be 3 to 5 people. Because that's way too much management.
However, that does not mean that having three to five advisors- with each one contributing some aspect about which you desperately need advice- is incorrect.

For a four person company, you should be able to grow your business with a board of two or three. If you need more than that, it's my supposition that you are not the proper person to serve as CEO. That is not meant derogatively; but the CEO for a small business (4 persons) should be able to handle the aspects of the firm necessary to keep it going and growing.

Jonathon Shaevitz Founder and CEO, Shoulder Tap Advisors

June 15th, 2016

Good comments. I strongly suggest avoiding a traditional board at your stage. The idea of detailed monthly reports is excellent and I have seen in work on many occasions, also, and advisory board is a good middle ground.

Chicke Fitzgerald

June 17th, 2016

Advisory boards for early stage companies accomplish so much of what you have stated as your goals, without the long term implication of a board. They can also provide credibility if selected smartly.

Finding individuals that can be available for one on one advice and opening doors can easily be accomplished with an advisory role and including options at an attractive price. Quite often the advisors won't even talk to one another, although I have a regular call with mine (just a "15 minute" standup call each month).

I do have a Chairman of my board and he is a longtime mentor and advisor. He also happens to be an SVP with a household brand name, so there is credibility that comes from that. I gave him a grant of equity in my new venture for all of his moral support, as he has been with me for 8 years.

I agree on the "odd number" comment when you do have a formal board and that you need to balance a board that does have representation by an investor with an "outside" independent board member. I think of that as the voice of reason that can help the investor board member think things through without the emotion that can creep into discussions if it is just investor/founder on the board. I've lived that one....