A colleague at our coworking space just raised a round of capital. She was telling me about her new board make-up and told me that her company has a board observer. To be honest, I’m not sure what this terminology means or how it differs from a board member. Are the responsibilities different? Does a board member have more power? Lastly, should you try to limit the amount of board observers that you have in lieu of actual board members?
Observers have the right to be in meetings. They represent investors with a minority ownership that is not significant enough to warrant a seat on the Board. They do not have the right to vote. They will provide insight to the process and discussion. You need a full Board of experienced people (not littered with founders) that can give you guidance and leverage in building the business. How many observers you have will be based on how many opinions you want, but it is unusual to have more than one or two at most.