<i>> It’s a good idea to keep enough control so that investors can’t fire you (there are a lot of different ways to do this)</i><p>Can anyone elaborate?<p>Sam articulates several advantages to having a board (focus on execution, thinking big, hiring executives) but none of them really require the board to have voting control, i.e. the ability to override the founder.<p>More generally, I think most founders would be fine with and welcome an outside board as long as there was a Zuckerberg-like voting agreement where the founders retained control. But then again I don't really understand the difference between that and a board of advisors.<p>Bottom line, why do investors care about control at the early stages? Do they really expect that they'll need to override the founder in the nascent stages? Is it just a security blanket? I would be wary of investors who really insist on the ability to vote against the founders at the seed to series A stage.
This is slightly off-topic, but I've always wondered: How do startups with a small number of founders set up their boards? I heard talk of boards with 2 founders, 2 VCs, and 1 outside board member; but with a single founder, there's no way to avoid being outvoted. Would there be a "friend of the founder who is trusted to always vote with her" seat to keep the board balance?
This article articulates well that it's important to have good board members and it's disasterous to have bad ones, but then doesn't really explain what to look for in a board member besides experience.<p>I'd love to see some input here about what makes a good vs bad board member and how to identify one when making a board.
To clarify the corporate structure generally:<p>Shareholders: They are owners and elect the Board of Directors. There could be different classes of shareholders, some with/without voting rights.<p>Board of Directors: They generally vote on the corporate officers and authorize corporate action outside the day to day control/operation of the business. Voting rights, powers, terms of directorships and the like are typically defined in corporate documents, and if none exist, then generally this is all defined by a given State statute/code.<p>Officers: Titles include President, CEO, COO, CFO, Treasurer, Secretary, ect... These people are in control of the day to day operations of the company. Again powers, terms and the like are typically defined in corporate documents, and if none exist, generally are established by default by a given State statute/code.<p>This is generally the default structure throughout all the states. All these things can be modified/defined in greater detail through shareholder agreements, by-laws, restrictive agreements, ect...
>> As a side note, bad board members are disastrous.<p>This is too important a point to be left as a side note; I'm sure this is the primary reason founders prefer not to have external board members.<p>"How to choose an external board member" would be a great follow-up essay.
Where do people find "outside" board members? I assume the term "outside" here implies someone who isn't longtime friends with either founders or investors, but someone who does have the respect of both. If I was a founder who wanted to build a board, how would I go about finding the right person?
I no nothing about this sort of thing but.. what about employees on the board of directors, advisory board or creating an employee board to fill this role?<p>I now that european labour socialism, unionism and some asian management paradigms have included things like this in the past. Are there any useful takeaways from those experiments?<p>I realize that the purpose of a board is to bring in a perspective less tainted by the day-to-day, but there can often be a disconnect between day to day and "horizon." Connecting the two is important. Assuming smart people, who's to say that employees would not be as capable of bridging that gap then some independent advisor with useful experience elsewhere, but not much understanding of the company itself.<p>The few times that I have been privy to that kind of discussion boards and advisors are supposed to be involved with (with real stakes involved), I always thought they had a poor grasp on some important aspects. Big ideas need to play to the strength of the company. Insiders have a distinct advantage here. Ideas that employees really like, have a extra advantage.
Especially for first time founders, not inviting an investor to sit on your board when you raise is a mistake. I can speak from personal experience here. The many upsides of an outside board member (mentorship, a cadence to the business, outside perspective, pattern recognition, real investor buy-in) outweigh the few downsides (loss of control, investment of time in board management).<p>It's an especially insidious mistake for founders, because not giving up control (i.e. not giving up any board seats) seems like a victory during fundraising, and you only see the downsides when things start to turn sour.<p>Here's another great post about the value of outside board members: <a href="http://allthingsd.com/20130927/the-value-of-a-board-at-the-seed-stage/" rel="nofollow">http://allthingsd.com/20130927/the-value-of-a-board-at-the-s...</a>
Having just finished the book Hatching Twitter by Nick Bilton, it seems that the board is the crucial thing for founder control. This really surprised me because I had assumed that the board worked for the shareholders and that if you had the majority of the shares, technically you controlled the board via proxy. But there must be some sort of legal maneuver that prevents this (otherwise, a majority shareholder could call a special board meeting and replace the board or expand it in their favor).<p>It was puzzling to me how Ev Williams basically got kicked out of Twitter by the board (of which he was a member) when he was the largest shareholder. Perhaps his percentage was diluted down during the previous rounds? The book implied the board kicked Williams out against his own volition even though he seemed to hand pick all the board members.<p>If a case like Twitter (and now Tinder) where the board sets the ultimate agenda is the norm, choosing board members is something that should be given more emphasis and the info in the post seems to be exceedingly helpful.
If the problem is really only guidance and outside input, wouldn't having advisors (no voting rights) solve the problem described in the essay without giving up any kind of control?
> But great board members, with a lot of experience <i>seeing companies get built</i>, are the sort of people founders should want thinking about their companies every day.<p>That IMHO sets the right tone. You want board members that understand they're on the sidelines, watching and evaluating. You don't want people who think they're the captain(s) of the team, "experienced in building companies".
One small thought on the penultimate para:<p>> <i>The companies that have had the biggest impact and created the most value have had excellent board members (and executives). I don’t believe this is a coincidence.</i><p>It can of course go both ways. I'm not saying good boards don't improve their companies, but good founders (likely to make good companies) probably also pick better board members.
<i>But great board members, with a lot of experience seeing companies get built, are the sort of people founders should want thinking about their companies every day.</i><p>This...<p>I believe that venture money on it's own is not worth the price. (VC's expected rate of return is higher than most credit cards) Getting the right golden advisor - all of a sudden the credit card looks cheap.