- Source link: https://venturehacks.com/board-structure
Founders should be careful to the composition of the BoD. It should reflect actual % ownership of the company and not be controlled by investors through a series of mechanisms like an independent board member on the investors’ side.
- How helpful? Scale of 1 to 5
- Topic Tags
Board of directors, investor control, founder control, board representation, independent directors
- Relevant questions addressed
How can founders not lose control of the BoD?
- Summary bullet points
- The constitution of the BoD, which happens during the first investment rounds is paramount to the future direction (and existence) of the company, as well as to the founder’s success
- % representation on the BoD should reflect % ownership to ensure owners’ interests are being protected proportionately
- Common stockholders should elect Board members by common majority voting
- Preferred stock is already safeguarded by protective provisions
- If a % ownership board does not work for investors an investor-leaning board can be a solution
- Equal number of board seats to each stock class, plus one or more independent parties.
- For each new board seat for investors, one for common shareholders should be created
- The independent Director should be a truly independent party. Big names are likely to have a good relationship with the VCs and thus are likely to side with them
- Founders can fill the independent before the financing round with someone they trust but who has expertise
- In case this is not possible, founders should still try to have a voice in the process by tying the nomination to the BoD’s unanimous approval, suggesting names and performing due diligence
- Follow-up links
Board of Directors - https://www.investopedia.com/terms/b/boardofdirectors.asp
The board of directors: role and composition - https://saylordotorg.github.io/text_corporate-governance/s05-the-board-of-directors-role-an.html