The question of when to put a Board in place and what that composition should look like is something a lot of start-ups grapple with – when is the right time to appoint a Board? Should it be comprised mainly of investors or have independent third parties? What’s their role and how involved should they be?
We discussed this topic with those who have experienced it first-hand and that are a part of that transition for many start-ups. Understanding the ins and outs better could streamline the process for you and get the Board you need in place to support and scale your business.
When is the right time to put in a Board?
The short answer – it’s never too early says Ned Cummings, Co-Head of Sales for Nurole, who are Board member hiring specialists in London. "There is a perception, especially with first-time founders that Boards might be more of a hinderance than a help, so they often delay putting one together. We also see founders delay putting together Boards as there’s a perception that either it will be too expensive or they won’t be able to attract high quality talent. In our experience, there is a huge amount of talent out there that have the skills and experience and are keen to help scale-ups but historically have not been able to connect with them. Compensation is one of the things we get asked about most - Board members in scale-ups are rarely doing it for the cash, they’re attracted by the opportunity, the challenge and ultimately the upside is in long-term value creation (whether that be options, equity or the ability to invest). It's very rare that an organisation and Board member can’t agree on the commercials once they’ve both agreed there would be a good fit.
Your Board should be the greatest return on your time invested anywhere. The Board should be a critical friend and mentor to the management team. And, there are risks in not setting up a Board:
- First-time founders maybe unprepared for upcoming challenges that a Board may have lived through.
- Early-stage founders are unable to focus on major strategy decisions due to managing day-to-day activities, missing the wood for the trees.
- Skills and experience gaps develop in the executive team as the business grows, meaning the organisation becomes more complex and a Board could help fill those gaps."
Ross Nichols, co-founder of Just Move In, the digital move assistant and home set-up service, agrees, "It is definitely never too early to think about getting a Board in place, the earlier the better. Things change so quickly in start-ups and going through the process of creating quarterly updates for your Board helps highlight what the focus is in the business at that time and if it's actually achieving its goals."
Getting the balance of your Board right
It’s worth noting that your Board members don't need to stay with you for the duration of your fast-growth journey. Your Board and their skill set should reflect the stage of your journey. Chosen correctly, your Board will know and recognise what stage the business is at and know that changes in its composition are necessary as it scales.
Another key appointment is your Chairperson. When do you know the time is right for one?
Ned from Nurole offers, "For the Board to run effectively, it needs a Chairperson. The Chair will need to oversee the strategy and governance of the business and keep the Board aligned and focused. They can act as a mediator between investors and the executive team, effectively run and coordinate Board meetings, guide the composition of the Board and Executive team, support and mentor the CEO and/or founder in their role as well as ensure fundraising requirements are met."
Where you seek the composition of your Board is very important. Don’t just recruit from your network Ned advises, "We would always encourage firms to look outside their networks for Board members. The impact of a great vs a good Board candidate will offset any reasonable search fee to connecting with an independent Board candidate. Equally, an investor’s voice on the Board is shaped by their investment. Having an independent on the Board can offer a different viewpoint. They can become a bridge between management and investors as well."
As you reach Series A, your Board should typically be comprised of the founder(s), a seed investor and hopefully an independent Board member.
What can I expect from my Board?
Firstly, set clear expectations of what level of commitment that you want from your Board. Fast-paced start-ups want a Board that’s available when you need them and is fully committed to the success of the business. Be sure to make that clear at the outset.
Your Board should not be expected to manage the company, they’re there to provide support and oversight for the management/executive team, namely, the CEO.
Ned explains further what happens once a company raises Series A:
"Once a company raises their Series A round we typically see two things happen:
- They hire an independent Chair - this is a really important hire to professionalise the Board. Often founders will not have worked with institutional investors before and so the Chair is an important link between managing the relationship and different perspectives of the executive team and investors.
- The lead investor typically takes a Board seat. This pattern occurs at each funding round and so once a company has gone through several funding rounds it’s not uncommon for the Board to comprise of three or four investors.
This comes with a couple of key challenges:
- Diversity - investors who take board seats typically bring similar skill sets.
- Conflicts of interest - investors have a fiduciary duty to act in the best interest of the company as a Board member but they also have obligation to their fund. This can lead to a conflict between what is best for the business and what is best for the investor. Each investor will have different time horizons and expectations for the business which can lead to diverging opinions on what is best for the business.
By bringing an independent Chair and other independent Directors on board you can mitigate against these risks as well adding to the cognitive diversity of the board."
Ross from Just Move In explained, "You want your Board to know what is happening strategically across Finance, Sales, Marketing, Operations and People to get their guidance and insight. They are there to support and bringing in those that are aligned with the key business objectives will do that. Finding that right connection and relationship is important for the success of the business."
How should the Board meetings be managed?
Getting the steps right for running your Board meetings helps you to have a reliable structure to make them effective. Ned advises:
- Assign a Chair for each meeting.
- They are responsible for sticking to the agenda. It’s easy to get side-tracked from the objectives of the meeting.
- They are also responsible for ensuring everyone around the table has the opportunity to contribute (and not just those that talk the loudest).
- Invest time preparing for Board meetings.
- Well written Board packs that have the right level of information.
- Share Board packs well ahead of time to ensure people have time to read it.
- Invest time with your Board members between meetings. Proactively manage those relationships as you will get so much more out of them, and it will also mean they turn up to Board meetings ready to contribute and rather than needing to get up to speed.
The next major change occurs when a Board gets ready to exit or IPO. In the case of an IPO, you will need to bring on a number of Board members. Ned says, "Given the requirements of an IPO there can be a number of changes at Board level - bringing on people with plc experience as well as creating various committees such as the Audit & Risk, Remuneration could benefit the Board and business greatly.”
There’s a lot to consider but one thing you shouldn’t delay on is choosing a Board. They can be the reliable mentor and voice of reason as you progress through your fast-growth investment journey. Their skill and experience will guide you through the most important milestones of the business without doubt.