Who should read this?
Startup and growth-stage founders and CEOs.
Why does it matter?
Effective board governance is a necessary element in building shareholder value.
Board size and structure: What you need to know
For a startup that is pre-revenue or just entering the market with its first commercial product, a board of three usually works just fine.
That board might best be structured with a seat each for:
- The CEO
- A significant investor (venture capitalist)
- An independent director
What makes an ideal director?
We could cover an entire post that looks at what makes an ideal director. For now, I’ll just suggest that the qualities you should seek include:
- Availability to work hand-in-hand frequently (this speaks to geographic proximity)
- Previous startup governance experience (as versus experience with large corporate and public company governance)
- Knowledge of your vertical
This should also be someone with whom you have a good rapport and mutual respect and trust.
As you scale, increase the board size
After initial commercialization and as your company starts to scale, I recommend increasing the board size to five. Ideally, you’ll recruit two additional independent directors so you have a solid and well-weighted board that is majority-controlled by independents.
It does not serve a company to have a board dominated by management or investors. Independent directors provide for objectivity, independent of any bias or vested interests.
- Startup Boards: Getting the Most Out of Your Board of Directors, by Brad Feld & Mahindra Ramsinghani (2013)
- Recruit and build a board that might fire you!
- Building your board? Don’t build in mistakes
- How do you appropriately compensate board members?
- Chart and maximize board performance
By Gregory Phipps