An article we liked from Thought Leader Baz Banai via Medium:
A Founder’s Guide to Startup Boards
You’re a startup founder. You’ve spent days, weeks, and months building out your minimum viable product. You’ve pitched countless venture capital investors (VCs), and now secured your Series A round of funding. Should you set up a formal board of directors?
The board of directors (the ‘Board’) is by far the most integral part of a startup’s internal management structure. A startup’s strategic direction is almost entirely dependent on the decisions of the Board — this includes fundraising, acquisitions, IPOs, hiring and firing of C-suite executives, budgets, new product lines, etc.
It’s often said that startups should think about setting up a Board only once they’ve raised their first round of funding. However, the benefits of forming a Board earlier in the lifecycle of a startup, irrespective of raising funds, are undeniable. Among the many potential reasons for a startup’s failure are those which are self-inflicted. Disagreements between the founding team, overconfidence, and lack of expertise — these issues can all be avoided with a strong and supportive Board.
Startup Board Formation
First, before we get into the details, let’s take a look at a few basic principles that every founder should know when it comes to establishing a Board.
- Legal — It’s a legal requirement in most jurisdictions for private companies to have at least one director (i.e. it can just be the founder). Public companies, however, usually have more than one director (depending on the jurisdiction) on their Board. The Board is subject to fiduciary duties, which, in a general sense, obligate them to act in the best interest of the company.
- What — It’s the Board’s responsibility to ensure that the interests of the shareholders are being considered in the strategic management and overall direction of the startup. At the early-stage, the interest of the Board and shareholders are aligned as the shareholders are the founder(s) and VC investors.
- Who — The composition of a Board (discussed below) can vary depending on the stage of a company. However, the typical startup board is comprised of the founder(s), a VC (as the lead investor of a funding round), and independent board members.
- When — Startup boards are usually formed at the initial round of venture capital funding (if not earlier), and upon which, the size and composition of the Board are a negotiating point in the term sheet phase.
- How — The frequency of board meetings can range from monthly to quarterly, but startup board members may also hold more frequent ‘informal’ meetings to address unforeseen circumstances (which there will be plenty by virtue of being an early-stage company).
- Remuneration— The remuneration of board members will depend on the circumstances. For example, VCs taking a board seat in their portfolio companies are...
Read the rest of this article at medium.com...
Thanks for this article excerpt and its graphics to Baz Banai via Medium.
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