Board of Directors

A board of directors is the elected body that governs a corporation, overseeing executives, approving major decisions, and bearing fiduciary duties to shareholders. Board-approved decisions include financings, acquisitions, executive hires, option grants, annual budgets, and dividend declarations. Venture-backed startup boards typically combine founders (1 to 2 seats), institutional investors (1 to 3 seats depending on funding rounds), and independent directors (0 to 2 seats added over time). It is the governance layer above executive management and below shareholders, and the body whose composition often matters more to founder control than the cap table alone suggests.

The typical venture-backed startup board evolution:

• At incorporation: 1 to 3 board seats, all held by founders. No outside investors yet.
• At seed: Sometimes still founder-only, sometimes adds one seed investor's representative if the round was led by an institutional seed fund.
• At Series A: Board typically expands to 3 to 5 seats: 1 to 2 founders, 1 lead Series A investor, 1 independent director (often required by the Series A term sheet), and sometimes 1 board observer (non-voting).
• At Series B and beyond: Board grows to 5 to 7 seats: 1 to 2 founders, 2 to 3 institutional investors, 1 to 2 independents. The Series B and later rounds typically negotiate additional board seats for the new lead investor.
• At IPO: Board restructures to meet stock exchange requirements (majority independent, specific committee structures, separate audit/compensation/governance committees).

The decisions that boards typically make (per bylaws and corporate-law requirements): financing approvals, executive hires and fires (CEO especially), executive compensation, option pool size and individual grants, M&A approval, annual budget approval, dividend declarations, material contract approvals (often anything over a dollar threshold), and bylaw amendments. The decisions that boards typically don't make day-to-day: operational hiring, product decisions, marketing strategy, customer-pricing decisions; those belong to executive management. The fiduciary-duty layer: directors owe duties of care (informed decision-making) and loyalty (acting in the corporation's best interest, not personal interest) to the corporation and its shareholders, with specific case-law obligations under Delaware law.

What founders get wrong: Composing the board for the current round without thinking about how the composition compounds across future rounds. A Series A board with 2 founders and 1 investor leaves the founders in control; by Series C, if every new lead investor gets a seat and no founder seats are added, the founders can be voted out of their own company. Negotiate board composition with the cumulative trajectory in mind.

Related: Bylaws · Fiduciary Duty · Officers · Shareholder Agreement

FAQ

What is a board of directors?
The elected body that governs a corporation, providing oversight of executives, approving major corporate decisions (financings, acquisitions, executive hires, option grants, budgets), and bearing fiduciary duties of care and loyalty to shareholders. The governance layer above executive management and below shareholders.

Who sits on a typical venture-backed startup board?
At incorporation: just founders. At Series A: typically 1-2 founders, 1 lead Series A investor, 1 independent director (often required by the term sheet), sometimes 1 board observer. At later rounds, the board grows to 5-7 seats with additional investor and independent seats added per round.

What decisions does a board make?
Financing approvals, executive hires and fires (CEO especially), executive compensation, option pool and individual grants, M&A approval, annual budget approval, dividend declarations, material contract approvals over a dollar threshold, and bylaw amendments. Day-to-day operational decisions belong to executive management, not the board.