Board of Directors
How to Build an Effective Board for Your Startup
When incorporating a company, many founders wonder how to build a board of directors and end up listing themselves as the sole director. As the startup grows along with a series of investment rounds, the board expands but the question of how to build a good board still lingers in their mind. Therefore, in this QuotaWiki post, we are going to look into some points to consider when you build a board for your startup.
🤷♀️ What is the Role of the Board?
The board’s key role is governance where its power and responsibility come from bylaws written when the company was established. In addition, the board of the startup has to focus on raising the company and helping the business to work in the market.
These are some examples of the task of the board:
Set internal rules and policies of the company.
Delegate C-level executives, including the CEO.
Make decisions on important issues such as mergers and acquisitions, on behalf of the company and stakeholders.
Decide capital allocations. For example, dividends, investments, and issuing new shares.
Through these works, the board supports management, helps a company to set a goal, and manages resources which eventually leads to successful corporate operation and company growth.
💡 Ideal Board Composition for the Startups
A small board is appropriate for the early-stage startup
Veterans said that three to five seats are adequate for an early-stage startup, whereas more than five is not recommended. An unnecessarily large board team often interrupts the company from working efficiently. A little tip is that having an odd number of board members is better. Think of the situation where half of the members vote yes, while the other half vote for the opposition. Deadlock will slow down decision-making in certain circumstances.
Choose a person with the right skill and rich experience
According to Fred Wilson, a partner of Union Square Ventures, the best composition of the startup’s board is a CEO of that company, one financial investor, and two to three fellow CEOs who already had or still have experience in building a successful company. Above all, choosing each member who will work best for your company is the most important thing. Think about the resources and skills the company will most need for the next two years. Will it be product development, hiring talent, or raising money? Seek a person with adequate skill, and make sure those people have experience running a company in a similar industry to yours. Those skillful professionals will provide a different point of view, filling the experience gap of first-time founder and VC investor.
Build a strong board culture
As the board members have to work as a team, building a good board culture is important to positively drive your company’s operations. Each member should know how to engage themselves, collaborate, and be open to communicating. Also, they have to attend regular meetings while fully informed, and well-prepared for it. Not only each member’s characteristics but also the role of the chair is significant. Create the right atmosphere in the meeting to let each member disclose their opinion.
Adopt diverse workforce
There is research with 366 companies across Canada, Latin America, the UK, and the US showing that the companies with the board having diversity in race, ethnicity, and gender are more likely to have better financial results compared to those who do not have diversity. No doubt that the diversity in the board workforce will bring your company a wide range of perspectives and experiences. This will lead to making more reasonable and insightful decisions, eventually increasing the chance of success.
💸 How to Compensate the Board Members?
VC investor board member usually does not get compensated, but independent board members do. Generally, in early-stage startups, between 0.5% to 2.0% of non-qualified stock options derived from the management equity pool are granted to each member. The amount of stock options granted to each person is determined by the member’s profile, equity pool, and company growth stage.
Building a good board is complicated work. QuotaBook can reduce the burden on equity management, letting the founders focus on this important task. If you want to try a demo, don’t hesitate to hit the button below!
※ Legal disclaimer
Make Equity Complete — QuotaBook is a global equity management platform with a mission to create an ecosystem for private companies and their investors and employees. Leaving spreadsheets and manual works behind, every stakeholder can connect online and sync crucial data on equity such as cap table or employee stock options. It is the leading platform used by top startups and VCs in Asia, backed by Y Combinator.
This piece is written for information purposes only and is not intended as financial or legal advice. QuotaBook does not assume any reliability for dependence on the information provided above.