Building better boards
Part One: What is a board — and how do you make a great one
As a new starter at Octopus Ventures last summer, I was faced with a host of exciting new challenges. Not least among them was my newfound role as a board observer – supporting our seasoned investment directors helping our portfolio companies grow. It was the first time I’d had to formally join a board at an early-stage company and I had loads of questions on my mind.
In this series of blogs I hope to offer some insights based both on my own experience to date, and the combined experiences of our team at Octopus Ventures. Our directors bring years of collected expertise, having sat on many early-stage boards — and worked closely with the pioneering founders we’ve backed.
There’s also a lot of great literature that covers boards, besides some boring documents covering legal aspects that are mostly only relevant for large, public companies, but across my reading, I discovered interesting points and sometimes competing ideas of what a board’s ultimate purpose is, who should be in it, and how it should be run.
Many startup CEOs or founders can see board meetings as something to dread, when in fact a board can be an invaluable resource to a founder building a category-leading company with big ambitions for growth. For Seed and Series A founders in particular, the composition of the board can have a huge impact on the success of the company. It should be understood as far more than just a legal requirement, or a box to be ticked, which is why in this blog we’re going to take a look at the purpose of the board — and ask how to go about composing one the right way.
The board represents a group of individuals whose input is indispensable for a company’s growth. From offering a network that can fill the top talent a startup needs in its early days, to a pool of expertise that can be drawn on during complicated processes like an exit: a well-composed, effective board should be one of a startup’s key competitive advantages.
In some geographies, including the UK, having a board is a legal requirement. The board members, or directors’, duty is to represent all shareholders’ interests. So, as a founder, you need to have a board — even if it is just you and your co-founder at the very beginning.
However, a board’s true raison d’etre extends far beyond compliance. Patrick Dunne, a highly experienced Chair, summarises it best in his book, Boards. He argues that the true function of the board is to equip a company with great vision, purpose and strategy —and ensure that it has the right resources and governance to realise these things. That doesn’t sound trivial to me.
One key mistake we see CEOs and founders making is not getting enough out of their boards. A common misconception is that the board’s purpose is to hire (and therefore sometimes fire) the CEO — but this idea, along with the notion that the CEO works for the board, is best forgotten. In fact, great CEOs make the board work for them.
It can be easy to slip into a routine: reporting to the board, placing emphasis on successes and downplaying any negatives. But doing so means missing out on the value-add that your board members bring. To maximise their productivity, CEOs should circulate pre-reading materials in advance of board meetings. This prepares its members for a productive board discussion on key decisions — instead of just reviewing the detailed data on a deck.
The best CEOs ask specific requests from their board members. As a board observer at MentionMe, I’ve watched CEO and Founder, Andy Cockburn, manage his board highly effectively. Ahead of board meetings he often circulates key strategic discussion points, the better to leverage the collective experience of his board members on whatever is high on the Company’s agenda. These have included topics such as entering new markets, branding and employee retention.
Still, it’s important to remember that the board does not run the company. The board members should be well positioned to advise on everything from operational matters to hiring, as well as to challenge the CEO and act as a sounding board for executive management. But they don’t make the decisions — those fall to the CEO. Good board members realise this and deftly navigate the fine line between challenging the executive without directing them.
We’ve talked about the ‘why’, now let’s cover the ‘who’. Whilst there is no right or wrong size for a board, it needs to be an effective decision-making unit, capable of having deep discussions efficiently. Typically, at the Series A or B stage, companies have five or so people on their boards, split be-tween executives and non-executives. At a seed stage, on the other hand, we tend to find three-people boards, including the founders or co-founders plus a Seed investor or key Angel investor.
What’s more important than the number of board members is who they are, and what their roles are. Perhaps the most key is the Chairperson; whether this role should be separate from the CEO is the topic of hot debate. While I can recognise the temptation for a founder to assume the role them-selves, in my experience running a founder-led board is difficult.
The Chairperson’s role is to lead the board: manage meetings, direct the discussion, and order the agenda. Beyond that, they can also have public-facing duties: communicating decisions and strategy to the outside world. The job of Chairperson is hard enough, without also making complex decisions about the future of a business as CEO. I’d argue that it’s better to understand the Chairperson as the right-hand of the CEO. They can help in managing the relationship with investors from a neutral standpoint. This might be key when conflict arises or when opposing points of view needs to be handled.
At Octopus Ventures, we advise our portfolio companies to get a Chairperson in place as soon as possible. Finding the right one means founders can extract maximum value from their board meetings from the get-go. Our People and Talent team is made up of specialists in the field of finding the right people. They bring years of experience, and a highly developed network across all our investment sectors. The team can make the introductions that ensure an ambitious startup can get the Chairperson it needs.
Last year, we introduced Zapnito, one of our portfolio companies, to Ian Perry, a Venture Partner at Octopus Ventures. Charles Thiede, the CEO and co-founder of Zapnito, says Ian has been instrumental in supporting them following our Series A investment. “His focus on Go to Market, Sales and Marketing Organisation development and overall leadership has helped us build the foundations for scale.”
Non-executive directors (NEDs) are another key component of a carefully chosen board. These are individuals without any management responsibility or other role at the company. They offer independent oversight and should be thoughtfully selected for their expertise and skillset. Ideally, they’ll complement the skills the other board members bring to the table.
It’s not unusual for executives or founders from companies further along in their growth journey to take up non-executive seats on startups boards — and I think it’s something all entrepreneurs should consider doing at some point. It can offer a useful insight into the makeup of other companies, and a look at what works — and what doesn’t — in their board meetings.
Last but not least, most VC investors will expect a seat on the board, including a director and/or an observer (i.e., someone who participates in the meetings and receives information packs but who does not have a voting right). And this is why entrepreneurs need to think carefully about who they take money from. Beyond capital, the right investor will also bring a deep understanding of the industry — along with a great contact book of top talent within it. Making sure that investors are aligned with a company’s vision, ambitions and values will make a real impact to the scale and speed of a company’s growth.
In this blog I hope to have offered some insight into the right way to think about a board’s function — and how to go about building one. In Part Two, I’ll be exploring board management and timings: what do you need at each stage of your growth, how regularly should a board be meeting, and how should those meetings be run?
If you approach board meetings with apathy, and secretly think they might be a waste of time, maybe that’s a sign you need to change your board. To discuss any thoughts about the set-up of a board, or if you think an Octopus Ventures investor should be sitting on yours, please do get in touch — you can reach me on [email protected]