How a Board of Directors can supercharge your startup
Taking your business from start-up to scale-up and onto a successful exit is not for the faint-hearted. It's a challenging journey that requires resilience, strategic planning, and unwavering dedication. As a founder, having the right support is crucial, and assembling a strong board can make a significant difference.
A well-rounded board can provide invaluable expertise, guidance, and networks, propelling your company forward at an accelerated pace. Therefore, determining the right time to form your board and understanding their potential impact is paramount for the success of your high-growth potential start-up.
When should you put a board in place?
The sooner you put a board of directors in place, the better.
As a high-growth business, you may well fuel your path to growth through venture funding. However, you don’t have to wait until you’ve already taken on investors to build a board. In fact, it can work to your advantage to get a great board together before you raise. That you have put a proper governance structure in place shows the quality of your leadership and robust management of the company. This increases the trust in you and your business, reducing your risk profile and therefore lowering the cost of capital.
"A start-up that already has an outstanding board in place will be significantly more attractive to potential investors"
It’s highly likely that when you take on investors, they’ll expect you to put a strong board structure in place. Major backers will undoubtably want a seat at the table to ensure effective deployment of their capital as you scale. Prepare for this in advance, so you, as the founder, lead the formation of your board, rather than having it imposed on you.
If you're raising investment through crowdfunding, you may not have a major angel or institutional investor as a board member. So, even more important for you to take the initiative and put a powerful board in place pre or post funding to support you in creating value in your business.
What’s the role of a board?
Your company board is in place to ensure good governance as you pursue your organisation’s mission and goals to drive value.
Your board provides strategic guidance, ensuring that decision making is sound. It supports the company in managing risk confidently and effectively. It safeguards the interests of all key stakeholders - employees, customers, suppliers, investors, community and the environment.
"A great board will provide you with great minds that bring experience, knowledge and connections"
Board directors bring objectivity and perspective to the executive team. They should challenge constructively, sense checking and validating ideas. Their role is also to coach and mentor senior management through challenges.
A strong and supportive board will play an integral role in helping you navigate strategic issues at pace, including growth and innovation strategy, fundraising, M&A, competitive pressures, recruiting and retaining talent, compensation, capital investments and leadership team dynamics just to name a few.
Your board will also be strong advocates for the business in a wider context, providing useful and powerful connections from their black book of contacts. They can review key appointments and handle external advisors.
What is a good board structure?
At early stage (Seed or Series A), you probably want no more than 5 board members. It’s important to have an odd number, to avoid stalemate on any board level decisions.
Aim for a balance between investors, founders and other skilled independent professionals. Bring together individuals with diverse experiences, approaches and perspectives to minimise “group-think” and support robust decision making. Board members should share a belief in the ultimate mission of the company and its core values.
One of your board members should be the Chair, who can run board meetings effectively. It's good practice to separate the role of CEO from Board Chair.
What qualities should you look for in an independent Non-Executive Director (NED)?
Consider what skills and experience you need on your dream board to balance out founder shareholders and any major investors. Experts in your industry or trusted advisors can be the missing piece of the puzzle.
"An appointed NED should be an individual that you respect, have chemistry with, and feel you could work closely with. You want someone who is going to be fully engaged, and a positive influence on your board and your senior exec team".
But what qualities should you be assessing them against? Here's a useful checklist:
Experienced - Relevant operational and advisory experience in building, funding, and scaling high-growth start-ups and running successful business.
Financially astute - Be comfortable with accounts and key performance metrics to ensure the company is well managed and can plan effectively.
Straight-talking - Able to question, challenge, and offer opinion. They must maintain confidences, have firm principles, and operate with integrity.
Supportive - The skills to coach and mentor you and your exec team through challenges and respond quickly when you need them. They should inspire, encourage, and motivate you to achieve great things.
Well connected - Able to open up opportunities with their powerful and extensive network and be a loyal ambassador for the business.
How should you remunerate your board?
An appointed NED has the same legal responsibility for your company's success as any other director. This individual needs to allocate sufficient time to attend board meetings and provide support. They should also add significant value to your organisation both now and in the future. Therefore, the business should recompense them accordingly.
"Align your board member's remuneration with both short and long-term objectives"
As a start-up, you may not yet have the funds in place to pay the going market rate for independent board members, which can be anything up to £3k per day or more. So, a blended approach of a reduced fee plus equity options is often the best structure. This motivates your board member to perform in the short-term and also aligns them in building long-term value for the company.
In terms of time commitment, for a fast-growth start-up, you’ll probably be looking to have a board meeting once a month to match the rhythm of your business. You may also need extra informal time from board members to support you with key strategic initiatives. Therefore, you might expect a commitment of 1-2 days per month from an NED.
You would expect your NED to sign a service agreement, reviewed every 3 years, and include Directors and Officers Insurance as part of the arrangement.
How can we help?
Dragon Argent provide expert advice on corporate governance, corporate finance, fund raising strategy, corporate restructuring, dispute resolution, general counsel, data protection and data governance framework.
Book your introductory call with our Senior Advisor, Julia Elliott Brown below for a time that suits.
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