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The Entrepreneur's Guide to Composing Your Board

This post is for entrepreneurs as part of a series of observations and tips on building an effective board. Some of the first—and most important—decisions you will make when raising venture capital involve negotiating the size and composition of your board. In this deck, Brady Bohrmann of Avalon Ventures provides top advice.

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The Entrepreneur's Guide to Composing Your Board

  1. 1. The Entrepreneur’s Guide to Composing Your Board by Brady Bohrmann, Partner at Avalon Ventures
  2. 2. About Brady Bohrmann Brady has over 20 years of experience as a venture capitalist and operating executive in both information technology and biotech. His focus is on early-stage investments and backing talented entrepreneurs. Throughout his venture capital career, he has worked with over 75 companies. He currently is a director or observer of many Avalon portfolio companies, including Backupify, Chart.io, Cloudant, Inc., Conjur, Indix, Juliet Marine Systems, Kaltura, Kinvey, Memrise, Nanigans, Pingup, Redbooth, Selectable Media, Simulmedia, The Happy Cloud, Twinstrata and Vook.
  3. 3. This topic is Part 2 of a four-part series by Avalon Ventures on how to build an effective board.
  4. 4. How to Compose Your Board Some of the first—and most important—decisions you will make when raising venture capital involve negotiating the size and composition of your board.
  5. 5. The Ingredients Typically, your board will consist of: • Representatives from the holders of the common stock (i.e., founders) • Holders of preferred stock (i.e., investors) • The CEO • One or more independent directors In the early stage, usually the founders are the largest holders of common stock and will control the board seats for the common shareholders and the CEO.
  6. 6. The Size of Your Board For early stage companies, we suggest a small and “balanced” board consisting of no more than five members: • Two representing the common shareholders (including the CEO seat) • Two from the preferred investors • One independent director recommended by the founders.
  7. 7. Defining the Investor Director Avoid rushing to appoint the independent director. Instead, wait until you can define the ideal candidate. It’s important to take the time to find someone passionate about your business and willing to leverage their network and expertise on your behalf.
  8. 8. When to Keep it Small If the amount of capital you are raising is relatively small, or structured as a convertible note, it is becoming common to reduce the size of the board to three members composed of: • Two common representatives • One investor This is a practice we generally support.
  9. 9. Board Meeting Frequency In an early stage venture-backed company, you actually need only a few meetings each year to meet your fiduciary and governance obligations.
  10. 10. Board Meeting Content Most official board business is limited to operating matters, company performance and strategy: • Approving the annual operating plan • Issuing employee options • Larger events such as authorizing funding, partnership agreements, or acquisitions
  11. 11. The Communication Conundrum
  12. 12. Management and investors alike begin to rely on the board meeting as the preferred method of communicating with one another. The meeting then devolves into a parade of scripted departmental updates and forced strategy sessions, all crammed into a three-to-four-hour window. The Communication Conundrum trap:
  13. 13. A board meeting is arguably the worst venue for productive conversation, and too much time is spent looking in the rearview mirror while too little time is focused on teasing out key problems and opportunities. The group dynamic of a board often reduces conversations to the least common denominator, inhibiting an efficient and productive transfer of ideas. The Communication Conundrum (cont.)
  14. 14. Resolving the Communication Conundrum At Avalon Ventures, we prefer to spend most of the time working with management outside the board meeting, in a series of informal, and often open- ended, get-togethers.
  15. 15. The Next Area of Consideration The next area entrepreneurs should consider when building a board is what to expect from your investor directors. See our next deck, How to Set Expectations with Investor Directors.
  16. 16. Learn more! Visit http://avalon-ventures.com/blog for more actionable advice on early stage startups, VC funding and other entrepreneurial tips.

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