When Danae Shell realised her company’s business model wasn’t working, she considered pivoting — but feared how her board of directors might respond.
Valla, the Edinburgh-based legal tech startup, had launched with a B2B model in 2019. But a year later, Shell believed the company’s future lay in serving consumers directly. “It was really scary because we had just raised on a B2B proposition,” Shell says.
But the response from the board was reassuring: pivots are normal. The board guided the Valla team through the transition, offering perspectives Shell didn’t yet have. “The board was very helpful for helping us explore the adjacent problem space […] to put a pin down on exactly what we were going to test and build next.”
In early 2020, as the Covid-19 pandemic forced millions of businesses around the world to close, Tom Leathes — cofounder of online car dealership Motorway — faced a choice: pull back or double down on growth.
“It was a very scary moment where no one knew what was about to happen,” Leathes says.
Leathes sought guidance from the company’s board, which told him to go with his gut: upgrade the engineering platform and hire aggressively, despite the uncertainty. When lockdown restrictions were lifted, Motorway was ready to scale — and is now valued at over $1bn.
Without their board’s guidance, the founders say these decisions would have been far more daunting. But as the founder of an early-stage startup, how do you build a board? And how do you manage it?
To answer these questions, we’ve rounded up some words of wisdom from a handful of Europe’s most seasoned founders and VCs.
When do you need a board of directors?
You’ll typically form a formal board after raising your first institutional funding round, usually at the pre-seed or seed stage). At this point, investors will often expect board representation as part of their stake in the company.
The purpose of a board constantly changes depending on the business’s requirements. At the earlier stages — when a startup is still trying to prove its model and find a product-market fit — the board is there to help the founding team build a business and, in turn, ensure an investor’s cash is being managed correctly. Sometimes a board will put business decisions to a vote.
Above all, early-stage startups should approach their board as an expert sounding board for strategic business discussions — for instance, about new hires or product-market fit difficulties.
And this doesn’t necessarily need to be formalised, says Laura McGinnis, a principal at Balderton Capital. Before you officially have a board, “you can still start to instill board-like practices […] and informal touch bases,” she says — even if it’s just with your cofounders or advisors.
For instance, you could identify strategic topics that you want mentorship on, schedule meetings with relevant attendees or send out an agenda in advance.
Leathes, who founded and exited three companies without boards before launching Motorway in 2016, agrees. At an early-stage, “it is helpful to have some form of regular cadence to check how your performance is … but it should be as informal as it can be at that point.”
How often should your board meet?
While company law does not provide an answer to this question, Wigfall recommends a minimum of eight meetings per year, roughly one every six weeks so that institutional investors “can stay informed and fulfill their duties as directors.”
But this can shift depending on your company’s situation. If you’re navigating an urgent financial decision, like nearing the end of your cash runway, eight meetings a year won’t cut it. In such cases, checking in every few days is better.
Anywhere between one and two hours is a good length for the meetings, depending on the urgency of the situation.
Board makeup and size: Who should sit on your board?
Given the influence boards can have on a company’s later direction, pre-seed startups shouldn’t go too big too soon. Between three and six seats for the founding team and institutional investors is enough to start with..
As you build your board, it’s worth thinking about whether you want an early institutional investor to impact your company for the next decade (or more). If the answer is no, maybe rethink whether you should take their money. (It’s worth keeping in mind that an odd number of members will avoid deadlocked votes.)
At an early-stage, you don’t tend to get much of a choice about who is on your board — but there are points where you can draw lines.
For example, observer seats — held by members who don’t get the same official voting privileges as others, and often requested by investors who participate in a round — shouldn’t be given away lightly.
Board decisions are rarely taken officially with a show of hands, meaning observers gain the same level of importance as other board members, in practical terms.
Although the board should be kept small, it should represent a variety of opinions: business decisions are best made after considering a range of perspectives, after all. So, especially as your board grows, you should focus on getting board members who bring with them different experiences. Thinking about how your board represents a variety of genders, races and ethnicities, socio-economic backgrounds and professional experiences is a good starting point.
And in terms of board roles, there is no need for a chair until Series A, at least. Before then, the startup’s CEO should be responsible for running the meetings.
For more advice on how to pick the best people for your board, check out managing director of Storm Venture Tae Hea Nahm’s top tips here.
What should you send your board before you meet?
Material needs to be sent out to board members in advance of any meeting like what KPIs to expect reporting on. The founder should prepare two types of KPIs for each board meeting.
As well as the KPIs “important to the company today,” McGinnis says, “ideally, you have the same KPIs at every single board, so that the board can actually see how you’re progressing.”
But remember: the board meeting isn’t for reading KPIs aloud. Instead, information should be shared — preferably five days beforehand — so you can get through the relevant questions quickly.
There’s no one way of putting these memos together. Leathes sends out a narrativised history of the past months to his board members; Shell sends recordings of her detailing Valla’s updates alongside a written summary. And if you don’t know what form your investors would prefer — ask them!
VC firms like Balderton provide guidelines so founders know how to update their board members in a way that’ll cultivate the most productive discussions in the meeting itself.
Alongside these company updates, remember to send out an agenda for the meeting, which includes discussion time for any strategic areas for board members to provide guidance on.
What do board members want to see from you?
The main quality board members want to see from the startup is honesty. Not every company takes the right course every time and investors know this best. “We’re not going to be alarmed,” Wigfall says. “And it’s better to hear the bad news more quickly than the good news, because we can then get together and work it out.”
This culture will reduce the likelihood of surprise deadlocks on decisions.
How do you approach disagreements and deadlock?
While disagreements at a pre-seed stage can be rare, it is completely normal for different approaches to surface around fundraising rounds and cash flows. Sometimes this will result in a deadlock — when half board members vote one thing, and the other half vote another.
“If legally a decision does need to be made, then the CEO…can receive that information and execute at will,” McGinnis says. “But if legally a decision must be made, usually you can have a board meeting the next week until you get there.”
While chairs traditionally have the casting vote, some investors aren’t a fan of this model.
“We genuinely didn’t like to have a casting vote,” Wigfall says about his past experience on boards, “because we felt it was bad governance to let one person who just had to be chairing a meeting carry the decision one way when half of the board are against it.”
To avoid difficult deadlock decisions, founders can speak to board members in separate sessions before the meeting in order to talk contentious issues through.
Not all conversations have to happen during a board meeting
The value of your board members is not limited to their contributions in meetings.
“The majority of the beneficial insights from people on the board will typically come outside of these setpiece meetings, and on much more informal calls,” Leathes explains. “Which is also how you build up trust and relationships with these board members.”
This might take the form of an advisory board. “There’s a formal board meeting and then there’s talking to advisors,” says Shell. “Sometimes these overlap, but they don’t have to happen in the same place.”
Read the orginal article: https://sifted.eu/articles/how-to-build-a-great-startup-board/
