When we make our seed investments, we have a strong preference for preferred equity rounds and forming a board of directors that meets regularly. Even in the rare case when we invest in a convertible note, we only do so if founders are interested and excited about convening with us and perhaps one or two other major investors on a regular basis in a structured way.
Some folks may question why we do this. Given how early a company is, it’s reasonable to think that the limited resources, simplicity of the business, and speed of execution negates the need for board meetings, at least until a company is further along. The argument is that board meetings (and prepping board materials) is probably overkill at best, and a waste of time at worst because of a few reasons:
1. Too time consuming to create materials when they don’t add direct value to the company
2. The meetings are not helpful enough. More can be accomplished ad-hoc or via email updates
3. Founders have control and don’t really need to report to anyone
I empathize with these concerns, and I’ve seen boards and board meetings become pretty disfunctional and a poor use of time and energy. But we think they are important even at the seed stage of a business. Here are a few reasons:
1. It forces a cadence of accountability
We tend to suggest that seed stage companies convene with their board ever 6-8 weeks. I think it’s a healthy level of frequency for the level of depth that these discussions should have. Overall, my bias is to suggest meetings that happen more frequently, but are shorter and less formal. But that’s personal preference.
Even though dozens of decisions are made each day, and multiple products will ship in between meetings, it’s nice to have an external forcing function to keep you accountable to goals and the longer term trend of your business. I find that this looks fairly different depending on whether your company is pre-product/market fit, or post PMF. If you are pre-PMF, I would use these meetings as mileposts to bound your experiments. In each board meeting, talk about the experiments you plan to run to get closer to PMF and why. Lay out short term goals, and then re-visit them during the board meetings to assess what worked, what didn’t work, and what you learned. This kind of methodical goal-setting I think is really helpful, and it’s nice to have some external structure to force that behavior at times. Sometimes, having mid-point check-ins are helpful. One founder I currently work with in the pre-PMF stage meets with me every 2-3 weeks to review these sorts of iterations.
Post PMF, it’s less about shorter term goals and experimentation, and more about monitoring the KPI’s of the business, and staying on top of longer-term priorities that might slip. Similarly, I’m a fan of setting goals, and doing lookbacks. Have you been unable to hire the engineers your were hoping for? Is a big partnership or deal slipping because you failed to reach some interim milestone? Has an important KPI slowly dropped for 4 weeks in a row to the point that it’s indicative of a major issue? Are you looking around corners and prepared for the future? Again, as an operator, you are asking yourself these things all the time, but it’s helpful to have other people to keep you accountable. I find that few founders have enough discipline such that they wouldn’t benefit from this kind of external accountability.
Accountability is also a potentially effective tool to motivate your team as well. One CEO of a seed-stage company I was on the board of, once told me “even when I know our board meetings are going to be short and straightforward, I find it really useful to push the team towards getting stuff done so that we can show our progress to the board. It may be artificial, but it’s a helpful tool for me, and it motivates the team to tell you about the stuff they’ve been able to get done”.
2. It Provides Strategic Time With Outsiders
It’s easy to get lost in the day-to-day grind of building your business. Actually, that’s probably the right thing to do to accomplish great things when you are under-resourced and under a lot of time pressure. But it’s important to be able to think more strategically about the business as well, and it’s helpful to get good external perspectives. Board members are potentially really great for this, because they should have sufficient familiarity with your business to have an informed POV, bring a broader set of perspective on what’s going on in the market or what has gone on in similar companies, and they are financially incentivized to maximize the enterprise value of your company.
If you think the strategic discussions at the board level aren’t productive, that’s a lost opportunity that should be addressed. I’d address it one-on-one, in a more casual setting with the board member. Your board member should be an ally, not an adversary or someone you are simply reporting information to. If things don’t feel that way, something have gone awry. This can’t always be fixed though, and it’s usually impossible to get rid of a board member. This is the reason why you should really be careful about picking the right investor and board member, not just maximizing terms on a financing round.
Even at the seed stage, I believe governance is really important. In many startups that I’ve observed, the companies that quickly started going sideways had a diffusion of responsibility among the investors, causing major problems to be caught way too late. Not that investors determine the success of a company, but I do think that good governance can help a company avoid mistakes, or reduce the impact of them, or at least prevent the mistake from becoming a mortal wound.
This is obviously helpful for founders too. I often see that a brief, informed board discussion does lead founders to make different decisions about hiring, compensation, budgeting, resource allocation, stock sales, etc that they end up being happy about down the road.
4. Preparation for future
Finally, if your company is going to get to a stage where there is a subsequent, VC-led financing round, you will certainly form a board then and have regular meetings and prepare materials. I think it’s helpful to have experience and context working with your seed board member before getting to this stage. It will help you determine your own style so you can get the most value out of your board. It will also give you additional context for what kind of a board member you want to have, which should inform the way you think about new investors in future rounds. If you are going to build a large scale, venture-backed company, board meetings and board materials are in your future. You may as well get started early.
Because we realize that many seed-stage founders have never run board meetings before, we wanted to provide some helpful guidance on preparing board materials and getting the most out of those meetings. Our latest NextView growth guide covers these topics, and even offers downloadable templates to simplify the creation of your own board decks (as well as a template for an alternative Google-docs approach). Check it out here and share it with other founders that might find this helpful: http://nextviewventures.com/blog/free-startup-board-decks-template/