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Understand the form, function, and frequency for an early stage BoD
Venture Investor, VenRock Partner, Waterfall Evangelist
A 2-person board is more of a conversation over coffee.
For early stage, minimize demands on management for reporting and prep time.
For diversity of opinion, cap investor BoD seats at three.
Lesson: BoD Management with Brian Ascher
Step #8 Utility: Understand the form, function, and frequency for an early stage BoD
I think seed-stage companies, once they've taken in other people's money, whether it's friends and family or angel investors or a seed fund, ought to have a board. Ideally, a three person board–two is more of a conversation over coffee-but a three person board. Maybe it's the founder, CEO or two founders and an outside director, but just enough folks in the room to have rigorous discussions.
And in a seed-stage company it's going to largely be around topics of finding product market fit, how you're spending your money, hiring, building up the team, etcetera. They're going to be quick affairs. I think two hours is probably good, maybe three at most. I can't imagine going longer than that. The businesses are just relatively simple and focused in that early stage, ideally.
The board meetings can be every four to six weeks. I think any more frequent than four weeks and it's just too much time spent on preparations and in meetings. Four weeks are good if we keep the meetings tight, focused, with a reasonable amount of reporting. Six weeks is a healthy number that can carry you through significant amount of funding. That's just a nice cadence and ultimately it may extend to eight weeks or more. But seed stage companies, four to six weeks sounds about right.
I think that while an early stage company could potentially benefit from board meetings every four to five weeks that might be a bit much. I think if you're going to do that you want to keep them tight and short, two hours. And you want to minimize the demands on management for lots of extra reporting and prep time because, no matter what, it's going to take a little bit of prep to have a productive board meeting. Especially if you're going to get those materials out in advance, which you ideally want to do so you're not just reporting one way and your board members come in prepared.
I think a preferred cadence for me would be every six to eight weeks. Then as you get to a much more mature company, things are a little bit more stable, you've found product market fit and your go to market model, you could definitely fall back to five or six meetings a year.
A board of two is too small. We might as well just go to coffee. There's really no pressure to come prepared on both sides and bring your A-game and really make this a serious undertaking that hopefully pushes the ball forward. I think three for a super early company is fine; three to five is ideal. That number is a good working number for a while. But I think once you get to that scale it phase and you're raising significant capital... going to seven, maybe with a couple of independents, is ideal. If you can cap your investor board seats at three, I think that's wise. Beyond that there's just not a lot of diversity of opinion and you're maybe crowding the room, which – even if it doesn't lead to too many voices seeking too much air time – it does inhibit the environment of really speaking your mind, and asking questions and having a dialogue rather than just a one-way reporting exercise, which is not the best. Board members in private companies are generally only compensated in stock. Typically, the grants vest a little bit quicker or shorter time-frame than an employee where it's a four-year vest standard – I'd say two to three-year vests are typical for outside directors. Cash generally only comes into play as compensation once a company goes public. Or you might start at six-month in anticipation of an IPO and that would be appropriate - for example, if you had to recruit an outside director to be your audit committee chair. There is a ton of work that goes into an IPO for the audit chair and there is also a fair degree of liability that you're taking on. So starting the practices of a public company while you're still late stage private is not uncommon either. You might be paying an independent director 50,000 to 75,000 a year plus perhaps incremental 10,000 or 15,000 for each committee that they're a member of – whether it's audit, compensation, governments, etc., and then maybe a little bit more if they're a chairman of one of these committees. It's part of the costs of being a public company.