When to set up a board of directors for your startup by Mark Suster

  • Source link: https://www.inc.com/mark-suster/building-startup-board-directors-investors-members.html
  • TL;DR: You should set up your board of directors around the time you get your seed funding. As you go through subsequent series of funding, it becomes more difficult to maintain founder-control of the board. You shouldn’t blow up a good financing option over this issue
  • How helpful?: 5/5
  • Topic Tags: Board of directors, financing, governance
  • Relevant questions addressed:
  • When should you set up a board of directors?
  • Should I expect to maintain control of the board?
  • Summary bullet points
  • Avoid creating a formal BoD if you haven’t raised any money (unless board members are very experienced)
    • Tough to get people off of boards once they’re on
  • Function of board:
  • Periodically have to summarize how your business performed in the last period (often quarterly; in the early days sometimes it's monthly)
  • Force you to think strategically about what you want to accomplish in the period ahead
  • Gives you a chance yourself to pull up from 1,000 feet to 20,000 feet so you can look above the clouds and think about where you're heading. If you get a smart person on the board , just having a sparring partner with a vested interest in your success can be useful.
  • You want to keep the board founder-dominated at the seed stage, unless the investors are financing a huge portion of the overall funds or there is a competitive capital landscape
  • At the A-Round, it is the norm for Investors to expect a spot on the Board
    • Founders often now maintain control of the board at Series A
      • (2:1 or 3:2 // founder:investor ratios)
  • At the B-Round, the founders will usually lose board control unless the company is a super hot commodity
    • Don’t blow up a good financing deal because of this
  • C-round and on, it is very rare to maintain board control