Jay considers how VCs add value to the boardroom dynamics of early stage companies.
by Jay Wilson
New to AlbionVC and having formal board related responsibilities I have been thinking about how VCs add value to the boardroom dynamics of early stage companies. Many questions were on my mind but most generally I wondered what does a great Investment Board Director look like? From speaking to colleagues who have collectively made investments into 200+ companies, some definitive themes and best practices emerged.
It is important first to understand the context. As venture investors we are minority shareholders and we should not be involved with operational decision making. Instead, boards have a role to play in agreeing the commercial strategy, ensuring the company has the right funding, and helping the founding team build out the right execution capability. VCs have a rare perspective on the issues that are common across a portfolio of companies as they go through hyper growth, and this experience is a valuable addition to the broad range of advice needed to succeed.
What follows are some of the key points we have learnt along the way.
Relationship building and board behaviour:
- Don’t build a reporting only relationship but try to become a trusted partner who is called upon to solve the problems at hand.
- The investment process can be a challenging time so set the expectations for open and honest conversations early, and don’t be afraid to say I don’t know; no one has all the answers no matter how experienced.
- Put yourself in the shoes of the founder and have empathy for their situation. Your life is not as hard as the entrepreneur’s.
- There will inevitably be challenges along the way and quarterly numbers will be missed. It is critical the team feels able to raise concerns and make mistakes; they don’t need to be reminded they are accountable but need support to get back on track.
- ‘Appropriate distance’ – carefully judge the balance between building a personal relationship with the team and providing critical insight. The challenging questions must be asked.
- Know what issues are appropriate for the board room; sensitive issues should always be discussed with the Chairman and other relevant board members first before tabling them at board meetings.
Board Format and Reporting
- Don’t inflict pain on Management by demanding excessive reporting, their time is better spent running the company not reporting to you. But do spend time agreeing the right KPIs / OKRs and agree the Board pack upfront. Review its efficacy on a set schedule.
- A well-functioning Board like any leadership team has the right people in the right seats, that includes the investor’s seat: you shouldn’t hold onto a board seat if you cannot support the company in the next stage of growth.
- Always prep well in advance for a board meeting – request papers be circulated well in advance. Don’t waste everybody’s time reading the pack in the board meeting.
- Have clarity on the governance process and invest early in the decision-making architecture and your role in it: think through what board sessions and committees are required to best serve the company. Do you need functional deep dives, dedicated strategy sessions, CFO updates, RemComs,…There is no right answer but engage in a debate and recognise this will evolve over time as the company matures.
- An experienced Chair is invaluable for Management and investors, at the very minimum the Chair should enable an equal share of voice around the boardroom.
- Recognise that while maybe 30% issues are common to all companies, 70% will be specific to your situation. There is not a cookie cutter approach to building a great business but be brilliant at the 30% that is.
- Introduce your network carefully; don’t overload a team that’s already maxed out. Understand which order to knock down the different challenges ahead and bring in relevant experience accordingly.
- Live in the weeds of the company: be a customer, meet the bench, visit the sites, learn the market. Get as close to the business as needed to understand the company and market dynamics.
- Ease the burden on Management around any transaction – fundraising or exit – this is your day job not theirs.
- Bring intensity and excitement to the Board, if nothing else be engaged, positive and responsive.
A big thank you to everyone who contributed to this topic in particular the BVCA.