Boardroom Dialogue

Take your time

This posting is a plea to entrepreneurs not to rush taking on investors or board members.  Since in private investing taking on investors usually involves taking on board members as well, both should be done with care -- getting rid of a board member can be nearly as impossible as getting rid of a ornery shareholder (yes they do exist).  And when they are one in the same....you can imagine the nightmare.

What does it say about an investor who gives you a check after your first meeting? Probably says the same thing as it would say about a person who agreed to marry you after the first date. Indeed, as Hugh Cullman of Silicon Alley Venture Partners has stated so well in many presentations on venture investing, getting married and getting funding are very similar. His speech is far more amusing than my recap here, but the point remains -- an investor who is planning to add value will take their time in looking at your company.  From my experience, it is 8-12 weeks sometimes more, rarely less before an investment passes all the due diligence, deal terms are worked out and the investor(s) and entrepreneurs have clarified how they will work together post-closing. While the investor (s) are doing this process, it is an ideal time for the entrepreneur to get to know them as well.

The most simple and logical form for the working relationship is the investor takes a board seat. Of course, if there are a number of investors involved, as there usually are in venture investing, then there is a choice of board member. The one who did most of the due diligence digging and/or hard ball negotiating  -- the lead investor -- is usually the one that pops into mind for the board seat. However, it could be that they are a deal addict and will focus their time and attention on the next deals and not on "dull" board meetings. Too often, an entrepreneur takes a passive role and the investor that squeaks the most  gets a board seat.  Such a board could end up full of strutting peacocks. Ask yourself, does this investor have the time, motivation, mentality and experience for a board role? If you're not sure of the answer, open the discussion and agree to a process for how the board can replace an investor representative if, for example, they fail to attend a number of board meetings or have a conflict of interest. 

Remember, you're in it together for the long haul, so take your time.

Getting those industry contacts

The first thought about boards that many entrepreneurs have is to use it to bring in sales. Indeed, in the survey I recently completed on boards of private equity and venture-backed companies, the majority of the entrepreneur respondents said that they expect board members to provide names of prospects. Of course, someone with high level contacts in your industry such as a C-level executive would be really able to open doors.

However, you may want to stop and think about what a board will be dealing with -- your compensation and performance, detailed financial information and strategic plans and other sensitive information on partnerships, customers etc. Do you want a high-level executive of a customer or partner company in your industry involved in all those areas? Probably not. It is so awkward to ask him or her to leave the meeting when the sensitive subject comes up.

So a better way to get them involved is through an advisory board or council next to the regular board. You may or may not chose to have the members of your advisory board meet together, although if you want to efficiently gather their insights on strategic issues, a group gathering is preferrable.  Also, such a meeting would likely also be more appealing to that individual depending on who else you've recruited to the advisory council. It helps also to have one or two members from the regular board involved in those gatherings to keep everyone singing from the same song-sheet.