How You Should Organize Your Board According To VCs (Part 1)
Pierre-Yves Meerschman is one of the co-founders of daphni and is one of the more meticulous partner I’ve never met: he’s dedicated to preparing everything in the details, and often more prepared than it could appear, and when I organized an event for the Station F’s founders community, he stepped back on his daily job (being a VC) and share tips on board organization (being a professor :) ).
Alongside his preparation, he cared about explaining to myself the duty of a board, what we can do and what we can’t, what’s tacit and what’s mandatory… raising some questions about the relationships between a partner and a company. The most astonishing part of my investigation on the topic of board management is the belief each VC has about boards: there’s no blueprint to organize the perfect board, because outside legal aspects, it’s mostly about care and relationship.
FIRST, WHAT IS A BOARD?
The board, often setup after the first institutional fundraising round, is at the top of decision making process. After the negotiation of a shareholders agreement, which involves all entities entering the founders business, the board is set up. It is not only about gathering advisory roles and finance/market experts but also a board of directors who have direct influence on the business, from strategy to operational tips & network. The members are elected for a defined period of time, which is also a way to ensure having the right composition and amount of board member over time. The more financing rounds, the more board members… and the tacit rule isn’t having too much directors, let’s say, for a private company, between 3 and 8 (including the company executives). They are clearly not there to manage the company, but to ensure a good corporate governance to accompany the growth of the company.
Each company maturity involves various board structures, and it seems that there’s no perfect board except some obvious consensus on the matter. Board members are often the co-founders and/or company executives, major investors (most often VCs) but also independent board member, to leverage their specific know-how (industry, technology, internationalization…). It’s not only composed of voting directors but also of non voting observers. Young investors are often joining boards as board observer, alongside a more senior investor, who serves as board director.
Spoiler: a board member is acting in the company interest. But VCs have a tendency due to their experience to take care of their own constraints and own interests as VCs, and we should remind that it’s neither a place for the ego of its members. In the legal point of vue, board members should ALWAYS act in the interest of the company first, but it’s just theory… This may be why Pierre-Yves is pretty bullish about independent members: “I’ve seen a lot of boards in my lifetime and I can relate that independent members are good to maximize the efficiency of board meetings. It’s all about the relationship we make with entrepreneurs, we follow them without being shareholders when that’s necessary and a both sides wish”.
BOARDS, IT’S ABOUT FINANCE (& PEOPLE)
Board members are often seen as a constraint following a financing round, and its composition often depends on what has been negotiated in the shareholders agreements. There are some mandatory rules & documents to establish in order to organize the perfect board. This might explain why a VC will always suggest to hire a CFO once the company is > 15 people, asking for rigor when entrepreneurs doesn’t have the time to check everything.
The hidden truth behind investment is that VCs have not always the same interest than entrepreneurs, at least not a the same time. When it comes to salaries (check Willy Braun’s article on this particular topic), budgets, raising or exit timing, it mostly depends on the relationship the founders built with the partner. Because having interests aligned can be difficult in the long run.
But it’s not all about finance: Nicolas Bailly, co-founder at Ring Capital, a new french VC that just raised €140M to invest in late stage, is one of theses VCs caring about the soft KPIs. “A board is quite driven by the investment and the finance stuff, we should not hesitate to have indicators that are not financial, such as values, DNA, management… it brings value to entrepreneurs in a very personal way and it is just as important to take into account these indicators.”
Weekly, or even monthly emails to shareholders and board members are legion in the StartupLand to share the metrics that matter and should be discussed at some point in board meetings. It’s a way for entrepreneurs to keep theses In Real Life meetings to focus on specific and big issues rather that just updating about the past and commenting traction.
Board meetings are also time to open discussions with key employees, and use as onboarding/incentivisation for employees that count. It’s what comes out the story behind our investment in Lunchr “[…] your board works particularly well: everyone has their place, we are the right number of people; you also involve C-Levels that count […] The way you include them says a lot about your people management.” added Sarah Caboche, the analyst in charge at daphni. Yes, boards can be used as management tool!
SOME TIPS TO ROCK YOUR FIRST BOARD
Organisation is key in order to use the board as a key momentum for your startup and leverage on the presence of experienced VCs and experts around the table. There’s some tips Pierre-Yves shared with the community in order to organise the best board:
- Set up a yearly schedule for meetings, everybody has busy calendars especially entrepreneurs. (Seed, 8 meetings/year / when the startup grow they should have less and less boards)
- Always set up an agenda & timetable (2–3 hours)
- Send the documentation in advance (at least 3 days) and give homework to board members
- Prepare all the materials in English
- Make sure connection is good if people are not there physically, there’s nothing worse than could not participate to these kind of meetings
- Make room in the agenda for miscellaneous
- Don’t hesitate to set up off board contacts, such as dinner and calls. More informal they can bring value.
- Send the report to all board members after the board
If board meetings are well designed and prepared, then board members will be able to bring valuable insights, will be able to dig into the key strategic topics and discuss them with caution and care.
When board meetings aren’t, they become frustrating for everyone: trust is lost, board members don’t have the time to discuss topics deeply, they cannot have a clear picture of the real challenges of the company and can only share generic feedbacks, which will be deceptive for CEO. The CEO inputs cannot really be understood and (s)he will have to manage doubts and desires, which might not be relevant.
Better the former than the latter, right? Get prepared.
Thanks to Willy B., Pierre-Yves M. & Nicolas B. for all the insights. The Part 2 will come with toolkit to organize & prepare your board
