Bringing the right people onto your board of directors can improve the strategic direction of your company, open doors to potential customers or future investors, and boost the credibility and reputation of your organization. But with the wrong people, your management team will be saddled with all the busy work and the additional oversight of outside directors, without any of the benefit. Getting this right matters more and more as you scale and the stakes get higher and higher.
Putting your common directors aside (you and any other management team representatives), thinking critically about how to set yourself up to attract and bring on the best preferred directors and independent directors can payoff big.
Preferred directors
Your lead investor from your last round likely sits on your board and the lead investor from your next round will likely join your board too. These relationships can last 10+ years through your company building journey and don’t offer you the same one-sided termination rights employers have with employees. So while rushing to close your financing and get investor wires in, make an effort to get to know your investors personally and how you anticipate working with them on your board. We recommend following these best practices:
1. Don’t fall in love with the brand name of the VC and get to know the individual
The individual at the firm is the one joining your board and he/she will be the one that you work with for the next 10+ years. So don’t rely on the reputation of the firm alone. Its a good idea for multiple reasons to get in front of your target future investors before its time to raise. This allows you to increase the chances of a successful raise and can shorten the process when you do start it. But it also allows you to get to know the partners at your target VCs in advance of your raise. You can find a testimonial from a CEO who describes her experience getting to know VCs before her fundraise here.
2. Get references from the investor
Just as you would through hiring a new employee, ask for references you can talk to. If they react poorly, that can be an indicator unto itself that this person may be difficult for you to work with.
3. Track down off-list references
Use Crunchbase, Angelist, Pitchbook, and Linkedin to source all the boards the individual serves on and has served on. Speak to the CEOs of these companies to understand what it was like working with them. Understand that their first instinct will be to protect their relationship with the VC you’re inquiring about, so lean towards identifying CEOs of companies that may no longer work with that individual investor. Hopefully they will be more forthright.
Independent directors
For an independent director you generally have a bit more control over who exactly you select given that you are not also balancing a term sheet in your decision. It’s also common that the independent director must be mutually agreed upon by the board, which means your choice must make sense for your preferred directors too. Look for individuals that:
- You trust, are fair, and have a strong moral foundation;
- Are genuinely interested and engaged in your business; and/or
- Fill one or more of the biggest gaps you have at your company. E.g, if your long-term plan calls for steadily moving upmarket and selling to larger and larger enterprise clients, you might look to add a big name in your industry that intimately understands these larger clients, can offer insights on the appropriate types of products, and how to sell to them.
Resources
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