Early-Stage Boards
By Esteban Reyes, Founding Partner at Las Olas VC (a.k.a. LOVC)
Some startup founders and investors reject the idea of establishing boards early. I hear many seed stage founders saying that they “want flexibility and to delay” setting a formal board for the series A. It’s true that not all boards are created equal, so in some cases that logic is correct. However, taking that position without having a good understanding of changes in early-stage funding dynamics and how effective boards can help early-stage companies is likely a mistake.
Today’s Seed rounds look more and more like Series A.
According to Crunchbase, in 2008 the average first seed round was $850,000, and today (ten years later) the average first seed round is closer to $1.5M. Additionally, Pitchbook reported similar numbers on seed round size growth — see chart below.
As a result seed stage companies are expected to be further along when they go out to raise a Series A round. This means that founders have to overcome a different set of challenges to get there. Establishing a formal board can be a strong lever for seed stage founders to access additional resources (the least of which is capital) to increase their odds of succeeding.
How boards can help founders in the early days
I recently wrote about how a great advisor can be someone who radically improves the quality of decisions. Who you pick as board member matters a lot. In my own experience I’ve observed that board members wear a few hats in that regard when working with early-stage startups.
- Confidante hat: Being a founder can be a lonely and thankless job. Sometimes founders just need someone to listen (without being judged) in order to refine their perspective and gain better clarity. This isn’t necessarily a sign of insecurity. Some of the most successful founders and CEOs had coaches and advisors since the very early days. An effective board member recognizes these opportunities and knows how to pull the thread in order to enable those conversations.
- Challenger hat: Having a thoughtful disagreement can be a marvelous thing. Sometimes board members can help founders get out of their own head for a moment and think about things differently. You need someone with an outside view, who’s knowledgeable, and is vested in your success.
- Connector hat: The best startups engage the best people they can find for each specific problem they’re trying to solve. Experience cannot be faked, but it can be borrowed. An effective board member doesn’t always know the answer to a question, but almost always can help founders find them.
- Facilitator hat: An effective board member can help facilitate execution. This isn’t about doing the work that corresponds to founders, but rather making it a bit easier for them to get it done. For example, providing frameworks and resources that can at least help founders understand how others tackled day-to-day operating challenges successfully. This can be applied to building your sales team, product, finance, etc.
- Analyst hat: board members typically have a broad view of the market, which can be useful for founders when trying to assess go-to-market and competitive landscape.
- Administrator hat: boards can help founders implement basic administrative processes and create discipline around them. Not having a well organized administration of things like option pools, minutes, and reporting and financials, can seem like a non-issue early on but will drag on the company as it scales. While individually these aren’t the most important things, in aggregate it can be a determining factor for future financings, dilution, employee issues, etc.
Death traps for founders to watch out for when setting up early-stage boards:
- Wrong people: people that don’t care or have the right incentives.
- Unclear objectives
- Poor communication
- Poor processes
Conclusion
Establishing boards early for the right reasons can be an advantage. There’s definitely trade offs in doing so — you will be accountable to more people and will have to be disciplined to manage those relationships effectively. It can be helpful to think about the pros and cons of setting up a board relative to the challenges you’ll need to overcome to hit your next milestone.
