Exploring founder mode for your startup board: Part 2
A roundup of the best advice on building and managing your startup board for success.
We’re bringing together the best startup board advice from around the world into what will be an ever-growing compendium.
We’re sharing this advice through the typical investment and commercial stage gates of a startup, because once a startup has taken on external investment, the founders have a responsibility to shareholders other than themselves and it generally impacts on how the board must operate.
If you don’t take on external investment and bootstrap your growth, it still helps to have a board that can support you to run the company and to grow it beyond what might be in your immediate toolkit.
This time around we’re focused on the time between starting and Pre-Series A, which we know can be a very long time in startup land! But we have a purpose - by the time a startup reaches Series A, as founders you need your board and associated processes to be humming, so they don’t trip you up in your Series A raise (and beyond). So the reason we’ve taken this time together is to help share what you should know at this point, so it can support you in your decision-making along the way.
We’re also taking our Part 1 as read, as all is still supportive here, and we won’t repeat it.
In this Part 2, we’ll go through:
How the board should be operating and supporting a startup before Series A
How to cover the basics and start developing your governance muscle to set yourself up for success
If you want to know more and build the skills you need to manage your company and board successfully, our next Startup Board Course cohort kicks off on 6 November 2024: apply to join us here.*
PART 2: From ‘starting’ to Pre-Series A
In this Part 2, we’ll go through:
How the board should be operating and supporting a startup before Series A; and,
How to cover the basics and start developing your governance muscle to set yourself up for success.
1. How a board should be operating and supporting a startup before Series A
A good place to start after setting the foundations is knowing when you have a ‘board’ and when you ‘need’ a board. Technically a ‘board’ is the sum of the directors, even when there is only one, and you always need at least one director when you start a company in Australia. When we say ‘board’ here though, we’re referring to the board that you build around you as the founder, and you as the first (and only) director. It’s these additions that require attention and they are often your early-stage investors. This is why we touched on “Knowing your motivations and the motivations of those you’re seeking to partner with” in Part 1 of this compendium, because they are significant, long-term relationships that need care and diligence when you’re entering into them.
To kick us off here, we’d love to share some wisdom from Maxine Minter, General Partner at Co Ventures, on when you ‘need’ a board, from our interview with her on “Preparing yourself for the progression from founder to CEO” here:
Excerpt: ‘... I don't know how many folks will be doing the Startup Board Course who are pre-seed operators, but I think for context, my opinion is you should have a board, a formal structured board with third parties in that room as late as humanly possible. The reason I think that is true is at that pre-seed stage, and even in the seed stage, you are focused on existential risks. You actually haven't earned the right yet to start building the company around the product-market fit, and part of that company building is, in my opinion, the building of a high-performing board. To make that progression, you are a founder first and you have to earn the right to progress to being a CEO.
Now there is a reality that you will have to incorporate to raise capital, which means you do actually already have a board when you do this, as in it physically already exists, so it's just about running that on the bare bones to meet the requirements that you have to comply with. In the same way that you can't not file taxes, and it isn’t advisable that you never do your accounts, there are base requirements that you need to meet from a legal perspective, and there are ways to fulfill those with minimal overhead…’.
Further, here’s more advice from another of the best, Adam Milgrom, Partner at Giant Leap, on the role the board in the early stages, from our very first article for Inside the Boardroom with Adam here:
“In its best guise, a board can give you access to people who are truly helpful, and who you wouldn't otherwise be able to afford, or who you wouldn't otherwise be able to get their time and insight. The best board members see a lot, so they can take things that they’ve learnt and are continually learning, being still active in the ecosystem, and use this to shortcut a founder’s and a company’s learning. They can act in support of and with the confidence of a founding team, and help them as a sounding board on their strategy and ideas, before they unveil these to the outside world. For an early stage startup, this is really valuable and the primary aspect of a director’s function, to support the team strategically.
While good governance and board hygiene are also essential, a director’s time and focus at this early-stage should be weighted to how they can support the founding team and the company towards their vision.”
So, while still making sure that we aren’t creating any unnecessary burdens in setting up a ‘board’ too early, or skipping out on the essentials of making sure the board and company are meeting their obligations, the board’s primary role in this early stage is to support the founder and company strategically. This is a primary lens that can help you to know who should be on your board and who shouldn’t be in these early stages.
And to cap this off with a quote on this from Brad Feld, an early-stage investor and entrepreneur, and author of the book “Startup Boards”, from his article in The Wall Street Journal called “Start Building Your Board Early”:
“Boards of directors play different roles at different points in a company's life. Early stage board of directors should be focused on being an extension of the team, helping the entrepreneurs get out of the gate, and get the business up and running.”
Knowing all of this now, who would you choose to be on your board? As your early-stage investors are likely to be your first directors too, we cover more on composition as we get to the growth stages - see Parts 3 and 4 coming up.
2. How to cover the basics and start developing your governance muscle to set yourself up for success
Maxine kicks this off well as she goes onto share more wisdom on how founders should be thinking about running their company before finding product-market fit:
Excerpt: ‘… My suggestion is, at the very earliest stage, to do the bare minimum on legal, accounting, and taxes until you have found a product-market fit that’s sufficient to start to build out these capabilities around the requirements of running the company…
As a founder in the progression to CEO, you need to understand the requirements of running the company and have the capability to fulfill these requirements, ideally by the time you have product-market fit or Series A.
The reality of human skill development is that you can't download a skill set (yet). If you leave it until product-market fit or Series A to start learning how to do this part of your CEO role, you’ll find you’re setting yourself up for a very hard learning curve at a time when you have many competing priorities…’.
So what are the basics and how do you ensure you cover them? We cover a lot of the basic requirements in our Startup Board 101: A guide for founders here. In reality, there are so many ways you can do this, but if we start from the point of the board’s true purpose in its role to support the founder and the startup, what you are really trying to achieve is: how can you best harness the brains trust of your board to serve you and your company while you’re in this hyper experimental growth phase with very limited time and resources?
The board should be working with you - not operationally, but strategically - and helping you to develop the overarching management muscle you need when you go from founder to CEO, as your growing company will demand. This means being able to share enough with the board for them to provide their input, while also covering off on the legal obligations that you have no matter what size you are, and that exist for all companies, as well as any requirements of your Shareholders Agreement.
In our Startup Board 101, we share some minimums that can support you to get the most out of your board while adhering to legal obligations, and we’ll repeat them here for ease of reference:
“To enable the company and directors to meet (their) obligations and discharge their duties, the company needs to perform certain requirements at the board (and management) level. These can include:
Having board meetings at an appropriate cadence for your stage;
Developing an agenda and ‘Board Pack’ for directors for each meeting, with sufficient information within to support informed decision making;
Taking minutes of meetings; and,
Ensuring decisions that need to be made by the board are appropriately documented and voted upon.
This as a practice is typically referred to as ‘board hygiene’, and while the legal obligations and requirements for ‘board hygiene’ are always there from the day you incorporate as a company, board hygiene as a practice becomes more important and demanding as you scale.”
So, depending on the demands that are outlined in your Shareholders Agreement, or in general from your existing directors or investors, you can set a rough guide for when you may want to meet as a board, and which are appropriate times for you as a company, such as, to set next year’s budget (or a budget!), or when you know you’ll be working towards your next capital raise. These are all items that need to be approved by the board, so it can help to line up your meetings to support these timeframes, if you know them in advance (even if that is the week before…).
In saying this, board communication and interactions are not just limited to when you have a meeting. Founders should be communicating regularly with directors and investors, and in a way and cadence that they are aware of and agree to as well. This helps all to stay informed of the company’s progression and performance (a requirement of being a director and likely a demand of an investor), and enables your board and investors to support you, as well as helps you to keep building these relationships, with minimal outlay of resources and time, relatively speaking. This is an essential habit that you’ll need to build and refine, forever - it never goes away as your company grows, it only gets more demanding (but you also can build in more support for this too of course).
We go through so much of the ‘How-to’s’ for great execution in our Startup Board Course, and we’d love to share some extra resources on this here with you too:
Y Combinator’s “How to create and manage a board” has a plethora of great information, and particularly about how to put an impactful board pack together, and the timelines that will help you get there, so you’re not asking your CFO the day before the board meeting that you need the management accounts (if this isn’t obvious, they won’t love that!).
Additionally, our latest podcast with Vidit Agarwal on his The High Flyers Podcast, episode 171, with Adam Milgrom of Giant Leap, Jacqui Purcell of TDM Growth Partners, and Ashleigh Camm of LUNA, shares some great wisdom about board reporting and meetings, and how to do this - check it out here.
Do you have wisdom to share here? Get in touch with us to be included.
Become more confident in your board and company obligations: apply to join our next Startup Board Course cohort - find out more here.
