How to run a strong investor relationship and board meeting process

Investor relations/ board management is an often overlooked aspect of building a start-up, and that is a pity. Start-ups have many critical items that are out of their control — eg., will they achieve product-market fit, will they be able to overcome the technical challenges in building their product, will their team gel effectively and build a great culture while working efficiently. Good investor relations and board processes, on the other hand, are mostly something that the CEO and top management can implement. It can dramatically increase the probability that the company will achieve its other goals, while turning investors into strong allies.

It’s important to realize that your investors are highly committed, but not in the same way that the entrepreneur and the top executive team are. This short– but perfect– poem hits the nail on the head:

“Bacon and Eggs” (by Howard Nemerov)

“The chicken contributes

But the pig gives his all.”

A lot of success in entrepreneurship is knowing how to help your investors help you: The entrepreneur needs to give their contributors the right information at the right time to allow them to contribute effectively. This happens most clearly through investor updates and board meetings

The hallmarks of success:

Transparent planning and goal setting: communications doesn’t occur in a vacuum — it is based on a clear vision and set of goals that is communicated both internally and externally. These core plans (sales plan, product plan, etc) will be the basis for all communications

Consistent, readable, scalable communications with stakeholders:

• ==> Consistent: create a reliable cadence (annual “management letters”, quarterly board meetings, monthly investor updates, etc). Set the calendar for the year and do not vary
• ==> Readable: create a template that will be followed every time, and which has the right assumption vis a vis the intended audience (ie., Board Deck can be presented in 1.5 hours; monthly investor update can be consumed in 5 minutes, etc).
• ==> Scalable: 90%+ of communications and interactions with stakeholders should be in a scalable form (ie., email, group meeting, etc)

Well-structured documents/ communications channels

• Quarterly board decks (best practice is to share board decks — outside of “closed session” matters and HR issues — to everyone in the company and all investors)
• Quarterly external report: Best companies create a simple 1 page quarterly document that goes to potential investors and partners
• Monthly investor updates: simple 1–2 page update with a combination of quantitative and qualitative analysis

Create an “investor team”

• Investors know each other, and see each other as part of a team effort: This sounds obvious, but it’s actually usually not the case. Companies will usually have their “major investors” and board members, but will not make an effort to connect them to smaller investors.
• Investors can complement each other, and there is a small (but important) element of friendly competition among investors in trying to be helpful in areas like investor introductions, recruiting, etc.

Signs of badness:

• Radio silence: months (or quarters) go by with NO news/ updates
• Lots of 1:1 communications with stakeholders: there are times when a CEO will be catching up 1:1 with investors (especially if they are also acting as trusted advisors), but in general, communications should be through higher scale channels and venues
• Inconsistent schedules and communications: board meetings scheduled at the last minute (or constantly rescheduled). Metrics/ plans constantly changing
• “Performative” board meetings: board meetings that are just performances — no attempt to highlight challenges or areas that the board will have to weigh in. No understanding of the role of the board vs. executive management
• CEO as single point of visibility: the top executive team is critical to work in concert on planning and communications. The CEO certainly takes the lead of setting the vision and will be the primary POC for stakeholder communication, but if the CEO is virtually the only conduit for information, it is a sign of a problem
• Compartmentalized investors: As mentioned above, if investors are segmented from each other, the company is not getting full advantage of the team that has been assembled around them

How to run a (seed-to-series A) board meeting

It is critical that the entrepreneurs view the board as “members of the team” — clearly distinct from staff (mostly because they are not 100% available, and frankly usually don’t have the capabilities of most staff). This sounds obvious, but often entrepreneurs (and board members) do not quite understand this relationship– they either try to pull board members into issues that are best owned by staff (and board members will often try to erroneously insert themselves into these issues) OR will treat the board as outsiders that cannot handle the ugliness and realities that start-ups face daily. Finding the right level is the key to an entrepreneur developing a successful board relationship.

Here are some guidelines that we’ve seen work well:

• Try to keep the meeting to less than 2 hours: it’s really hard for everyone to be productive for a >2 hour meeting
• Send the deck in advance: ALWAYS send at least 24 hours in advance. Anything less is unacceptable
• Set the calendar for the year: don’t try to schedule meeting-after meeting… just set the schedule for the entire calendar year all at once, and establish a cadence and date that will be expected year-after-year
• Take time to get the board deck right: you will be using this format for 1–2 years (consistency is your friend).

The format will generally change around major stage issues (ie., moving from Seed to Series A; moving from R&D mode to sales/ execution mode, etc)

There are plenty of online resources on board deck contents (This post by Sequoia’s Bryan Schreier is excellent– it provides both the high-level view and the practical minute-by-minute, slide-by-slide breakdown

Start with the big picture and the “northstar metrics”

• CEO should spend time on highlights, lowlights, what’s keeping them up at night
• There should be a very small number of northstar metrics that the CEO and exec staff define together that are consistently reported to the board (Here’s a great collection of SaaS Northstar Metrics compiled by (all-star investor and PM) Gokul Rangarajan)

Dive deeper into product (both metrics and functionality), partnerships and sales (largely metrics/ insights)

• Both of these sessions should be driven by top executives in the relevant functions

Financial and HR reporting (always vs. plan)

• Review P&L, cashflow, balance sheet (all against plan). Bring out the color behind the numbers– what’s driving any variance
• Review headcount and hiring (and key roles that are being recruited for). Discuss any churn (top executives will be discussed in closed session)

Working sessions on major strategic issues:

Board members love being part of the strategy session, but in our experience, find it difficult to add real value outside of a few topics (of course, everyone has intelligent opinions. It is rare, though, that the board’s opinions are more useful than the opinions of executive management). The CEO should prepare these sessions diligently: it should not be a brainstorming session– that should have already taken place with executive management and advisors.

• The CEO should be presenting strategic alternatives considered, and suggest the path that the company should be taking
• The board is most helpful when it comes to marrying the implications of the strategy against financing needs, market conditions, etc
• For each board session, it is hard to tackle more than one really meaty strategic issue (eg., “pricing strategy”; “distribution strategy”, etc)
• Financing plans: this is the meaty strategic discussion that board members will engage with most enthusiastically and knowledgeably. Obviously, not every board meeting will have a financing topic, but this is where a board working session makes the most sense

Closed session:

• largely around compensation, stock grants, feedback to founders, etc

In addition to the “required elements” above, here are some things that we’ve seen as helpful “tips and tricks” employed by various CEOs:

Invest in the board’s relationship with you and each other: if possible, schedule the meeting so that the board members and key execs can have lunch together after the meeting; it seems like a lot of time, but it is worth it

Make the “operating system” transparent to the board: have a recurring item in the board deck on the key collaborators (ie., corporate law, IP law, PR, grant consultant, fractional CFO, etc).

• This is an area where investors have an informational advantage vs. the entrepreneur– investors see dozens (or hundreds) of companies, and have a good sense for which service providers will be best. The right service provider / consultant/ advisor can add a ton of value

Finally, here are some things that are not always helpful (and which are sometimes just plain bad):

• The “board memo”: some companies in our portfolio use Amazon-style “board memos” instead of presentations. It is *okay*, not great (in our experience). The nature of a recurring meeting is that a lot of content is dashboard-y, which doesn’t lend itself well to memo-style (which works better for a new business proposal, where attendees should steep themselves in context and more content than can be conveyed in a ppt presentation)
• Pre-meetings: it is good to have pre-board meetings before the first, or maybe the first few board meetings. Or, if one of the leading board members is stepping up into a quasi executive coaching role, the CEO may want to have individual meetings with him/ her around board preparation. However, if the CEO is spending more time in pre-meetings with individual board members than in the board meeting itself, then this is highly inefficient use of time (and a likely sign that the board meeting itself is merely performative). An exception to this is delivering really bad (or controversial) news: management should never be waiting until the board meeting to deliver this information (eg a major quota miss; a major technical issue; a major executive departure; etc) — the board meeting may be a good place to reflect together on major problems, but it’s rarely the place to spring major problem on everyone cold.

Tools and vendors

Captable management:

• Carta is the standard (and we were seed round investors, so they have a special place in our hearts). However, they are increasingly expensive, and they are very hard to leave (ie., if you want to end your contract, it’s very difficult to extract your data)
• Pulley and Captable.io are the up-and-coming challenger; they offer everything Carta does, with somewhat more aggressive pricing. As far as we can tell, the only reasons to not try alternatives to Carta is that Carta is already well-understood by all investors, who may have many portfolio companies on the same platform. However, investors can easily get used to a second platform, so start-ups are encouraged to investigate alternatives, because this can be an expensive item
• Investor relationship management: Visible has a platform that includes “IR in a box” for start-ups, plus a lightweight CRM for fundraising (~$99/mth for “good enough” version”)

Document management: DocuSign/ HelloSign should be used for all board signatures (ie., NO paper documents)

Board secretary: Your lawyer will often offer someone to be a board secretary for a fairly nominal fee, to help build the relationship with your company. This should be taken advantage of, and you should ask. They can help run a better board process, and make sure that all board notes and actions are properly taken.

References

• Aaron Harris (Y-Combinator) on best practice investor updates
• In addition to creating a useful investor relations toolkit, the team at Visible has a great blog/ podcast series that covers everything from fundraising to board governance