With every new investment or financing round, the discussion around the composition of the advisory board starts all over again. Who shall stay on board, who becomes an observer and who will drop out? One fact is for sure, though — the new lead investor will get an observer seat if not even a board seat and (very often). Throughout the last 10+ years being an active advisory board member for various B2B SaaS companies in Europe, I experienced the good, the bad and the ugly in terms of board composition. Therefore, I summarized my 10 Do’s and Don’ts when implementing an advisory board.
Two short disclaimers:
1. At Senovo, we have been investing only in B2B SaaS companies across Europe over the last 10+ years. Therefore, my experience and the recommendations are based on this kind of companies. Other or additional characters and experts might be needed to optimize your advisory board.
2. Depending on regional standards and jurisdiction, founders or one representative of the founders are also board members. As the founders are most likely the managing directors of the company, they report to the advisory board and bring forward any recommendation or opinion on operational decisions. Therefore, the role of the founders or managers within the board is not the scope of this article.
Here are my 10 recommendations for a strong advisory board for start-up and grown-up companies to increase the likelihood of success:
#1 General Purpose of an Active Board
From my perspective, the purpose of an advisory board within a B2B SaaS venture is twofold. On the one hand, it should support the founders and managers in a vast array of issues. The members should be sparring partners. On the other hand, board members should provide the outside perspective on the company and its management. They should challenge as well as assess it. This includes add-ons and replacements.
In order to fulfill both of these purposes, it is essential that members of the advisory board are active, i.e., they take the time to 1.) get to know the management team initially, 2.) are up to date with the overall business operations on a regular basis and 3.) understand and know the market the B2B SaaS start-up is active in. Therefore, challenge every candidate for a board position if he or she has the time and expertise to be part of this journey.
#2 Small Advisory Board
Keep the board as small as possible and make it as large as useful. Moreover, my experience is that an odd number of members makes decision making easier, but it is not a must. Hence, three or five members of the board are ideal from my perspective. Many investors request a board seat and an additional board observer spot. This might make sense if the investor is very active and, for instance, a junior colleague joins the board meetings as observer to support the management with operational or strategic tasks on a regular basis. In general, I am not a big fan of board observers.
I am much in favor of the role of a chairperson of the board. Especially if the board consists of 5 members or more. Therefore, nominate a designated chairperson of the board. He or she is responsible for organizing board calls as well as meetings, mediating in case of disagreements, and above all is the primary contact for the management and founders as well as the other board members. As a result, founders do not have to handle too many parties at the same time freeing up time for executing the business plan.
#4 Board Members’ Expertise & the Board Composition
Especially during the early stages of a B2B SaaS start-up, the advisory board very often constitutes of only investors, such as business angels and seed VCs. These members have certainly expertise in financing a start-up, but this is not enough and ideal from my perspective. Therefore, I strongly favor a complimentary board team from the very beginning. For me, the perfect board looks like the following:
- One person from your industry that can challenge you on strategic questions (i.e., product, competitors, and markets),
- One person with a B2B SaaS go-to-market background (e.g., a former or current CRO, CSO, CMO, etc.) who can help you scale your G2M team and identify the right performance KPIs as well as incentive schemes. This includes marketing, sales and customer success departments.
- One person with a financing background. Given the nature of the VC industry, these backgrounds tend to occur more frequently, especially at the early stage of the company’s journey. You need someone who can help you with new financing rounds, contacts to follow-on investors etc. But one or two should be enough 😊.
Incentives for board members is an important aspect for a perfect advisory board. This is not relevant for investors as it is their role to advise and help their portfolio company. They are incentivized by the return of their investment. However, external experts (e.g., a successful former CRO of a B2B SaaS IPO firm) need to be motivated and appreciated through some form of compensation. Below you find some indicators as a good approach:
- Really good board members are typically very senior (and often financially settled), which means that cash is not their prime motivator. This is actually positive, because they will only spend significant time on your advisory board if they really believe in you and your product. They are normally incentivized by virtual shares of your company. Depending on the stage of your start-up, I see share programs of 0,25% up to 3% for single external board members (cliff one year, vesting period 3–4 years)
- If someone still needs or wants cash, I recommend a 50–50% split between money and (virtual) shares. We normally see a cash compensation between EUR 10k and 30k p.a. (excluding shares) for B2B start-ups up to 250 FTEs.
#6 Right Timing
Every advisory board member (including investors) is typically the right one only for a certain stage of the company. For instance, an early stage investor might be very helpful for supporting in a follow-on Series A financing round. However, his/her network and expertise might be not sufficient for a Series B or C round later on. The same is true for industry experts like the CRO example described above. For you as founders, shareholders, and managers of your company, it is important to choose the right people for the right stage. Moreover, make sure that there is a proper hand over from one advisory board member to another.
Try to consider diversity among the board members as much as possible. The best advisory board experiences I have made so far were with very diverse board teams. This includes not only gender, but all other aspects like background, origin, etc.
#8 Responsibilities & Corporate Governance
I recommend a strong board structure. What does this mean? I mean the corporate governance of the company. The board should be able to decide on behalf of the shareholders most or all of the operational decisions, like annual budget, approving extraordinary expenses etc. All non-operational decisions, which occur on a rare basis, like approving a new financing round or approving the annual report, can remain at the level of a shareholder resolutions.
This topic “decision-making” is more a procedural topic . Whenever you negotiate a new or first shareholder agreement which includes the corporate governance as well as the procedure of the advisory board are discussed, make sure that you do not require a physical advisory board meeting to make proper decisions. Decision-making should be based on e-mails and/or phone calls and documented in meeting minutes signed via e-signature.
You as founders or managers must live, enforce, and demand a certain level of professionalism within your advisory board. An experienced chairperson should also be able to help with this task. I have attended too many board meetings which were not well managed and at times even chaotic. Here are some recommendations to make the board meetings and calls as efficient and useful for you as possible:
- The agenda should be prepared in a way that the manager and founders get as much input as possible. A board meeting should not be a sole presentation of numbers by the management. A comprehensive agenda should include:
- A standard reporting consisting of 1.) an executive summary of the cause of business (main achievements and challenges), often called CEO report, 2.) main performance and financial KPIs, 3.) an overview of the product development and 4.) an analysis of the G2M team’s performance as well as sales pipeline [max. 20% of the meeting time] — see also our Senovo blog and presentation template https://medium.com/senovovc/learnings-from-startup-board-meetings-72d7d21d786.
- 1 or 2 deep-dive topics proposed by the management where they want to get input from or being challenged on by the advisory board members. These topics can be very diverse, e.g., on internationalization strategies, financing rounds or nearshoring of IT resources [70%-85% of the meeting time].
- Formal decisions to be made, e.g., approval of reserved matters etc. [max. 10% of the meeting time].
- The chairperson or CEO should send out an invitation with the proposed agenda for the meeting. Board members can add additional topics in liaison with the chairperson
- The chairperson or CEO should organize a permanent board minute keeper. This is normally a trustful team member. So, all board members and founders can fully concentrate on the meeting
- The board material, i.e., the presentation and all documents, should be provided to the board members at least 48 hours prior to the meeting
- The chairperson or CEO should communicate that it is expected that all board members should have read the board material in advance. I think it is very unprofessional if board members ask questions during a board meeting when they should find the answer on a certain presentation slide.
- Only the CEO report should be presented by the CEO. The remaining standard reporting is only addressed if certain questions are asked by the members of the advisory board
- The management should address the 1 or 2 deep-dive topics like a workshop. The management presents the status quo, the problem or challenge, their ideas, or solutions, followed by an open discussion
- Every board meeting should end up with certain tasks and deadlines. The chairperson or CEO should follow up on these tasks and present the current state or outcome during the next advisory board meeting
If you have any comments on this blog post or made different learnings in the space of B2B SaaS advisory board compositions, just send an email to email@example.com. I am happy to discuss your thoughts and experiences.