Who They Are, Why We Like Them, and How to Find the Right One for You
Written by Emma Silverman
Your Board: An Overview
When we think of a classic boardroom, we imagine a long shiny table, men and women in suits, a pristine display of bottled beverages, tiny sandwiches. And while that stereotype may indeed be reflective of (some) later-stage companies, your board at the start of your journey will look significantly different.
Assembling a board ultimately sets the tone for your success; it helps you move the needle from start-up to booming business, so selecting your board members requires careful, purposeful decisions. (Remember, however, that your board will evolve with the various stages of your company’s growth.) But before we get into all that, let’s start with the basics.
The Purpose of a Board
A company does not succeed on the talents of its internal team alone, no matter how brilliant or experienced. Long-term success takes a village: investors, strategic advisors and other partners to provide nuanced guidance along the way. Your board plays a fundamental role in this mix, and is critical in determining the strategic direction of the company. Board members make decisions on key issues, like fundraising and M&A, determining when and how to go public, hiring C-suite executives and more. It’s also the Board’s responsibility to make sure that the interests of the shareholders are considered in the overall management of your company: this is why many CEOs consider their “boss” to be not only their shareholders, but also their board. Needless to say, this gets more complicated as a business grows. For early-stage companies, the interests of the Board and shareholders are aligned, since the shareholders are the founders and early investors. Regardless of the stage of your company, there are a few board member “musts” that hold true in almost any scenario:
- Industry expertise and access to a network of insiders
- Honesty and transparency
- Responsive in communications outside the boardroom
- Adds value in the form of introductions, financing, marketing, and more
Assembling Your Board
Ultimately, your board will be defined by the size of your company, stage, industry, investors, and the preferences of your management team. But, there are some guidelines you can follow to get started:
For an early-stage startup, the standard construct looks like this: 5 seats total: 2 for management, 2 for investors, and 1 for an independent board member, someone who has no connections to the company and can thus provide a more objective external perspective. Purposeful distribution of roles ensures that various shareholder interests and perspectives are represented to encourage informed decisions. Note that many early-stage start-ups don’t fill all of their board seats (it’s simply not always necessary, and the more people who are required to vote, the more difficult it can be to move quickly, which is critical in the early days).
What is a Board Observer, and Should I Have One?
Board Observers are essentially what they sound like: they attend board meetings but don’t have voting rights. (They do, however, maintain the same fiduciary duty as all other board members to protect the company’s interest). Board Observers have what we like to call “soft” power — influence, expertise, and objectivity — which is valuable for many reasons: most importantly, it allows for a candid, transparent perspective without the added weight of voting rights. Strong Board Observers are well-equipped to spot key issues that might otherwise be missed. They may also act as a valuable resource offline, as well as help amplify the necessity of forward movement and constant evolution of the company.
If you are a founder, your investors may require a Board Observer role as part of their terms; many early-stage investors make this request in order to stay aware of the company’s progress, perform periodic assessments and fulfill duties to LPs. This visibility into company decision-making can be powerful for both founders and investors: having a “board seat” at the table keeps investors up to speed, motivated to add value where it matters and accessible.
When considering Board Observers for your company, look for individuals with nuanced knowledge and domain expertise. If your business reaches across multiple industries, make sure that your Board Observers have access to the networks you need — and that they are generous with their connections to help you thrive.
Why We Like the Board Observer Role
At TMV, we are big fans of the Board Observer role, particularly for pre-seed and seed-stage companies. It’s not always the right fit (sometimes the Board Member role makes more sense), but even as lead investors, being a Board Observer allows us to work closely with the founders in our portfolio while enabling them to progress swiftly and efficiently. We’re able to guide new founders, especially during the first 18 months of their journey, without slowing them down.
Taking a Board Observer role, rather than a formal board seat, also keeps everything a little less formal. We like to think of ourselves as the investors you can shoot a text to for immediate support. We appreciate that the Board Observer role allows us to continue to collaborate as your company grows — without administrative complications regarding how your board construction may change at the next raise.
As founders ourselves, we never underestimate the importance of building lasting relationships, growing our networks, sharing ideas, and providing a multifaceted external perspective that, in turn, helps to move your business forward. Taking on a Board Observer role allows us to do all that, and then some. While we’re focused on helping guide founders to their next round, we’re also deeply committed to maintaining our founder relationships far beyond the first few years — and well into the future.
About TMV
TMV is an early-stage venture firm that invests in purposeful startups reimagining the future.
If you are building an innovative business of the future or if you are an investor who believes in the power of community and operational commitment, we want to hear from you. Find us at hi@tmv.vc
