1.
Understanding the
Purpose of your Board of
Directors
by Brady Bohrmann,
Partner at Avalon Ventures

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.
This topic is Part 1 of a four-part
series by Avalon Ventures on
how to build an effective board.

4.
Two hours into a recent board
meeting, my mind was fried.

5.
My eyes were glazed and my
thoughts were wandering randomly
before settling on this question…

6.
“Why do some board meetings leave me
energized and others suck the very life out
of me?”
I did the math and came to the sobering
conclusion that in the past 15 years, I’ve spent
thousands of hours in meetings like that one.

7.
In this deck I will give an overview of the
purpose of your board and how to
optimize its effectiveness for your
company.

8.
Understanding the Purpose
of Your Board
In its simplest form, the board of directors is a group
of elected or appointed members charged with the
responsibility of overseeing your company’s
activities.

9.
The Structure of Your Board
The structure of the board is spelled out in the
company’s bylaws and typically includes:
• The number of directors
• How each director is appointed
• The minimum number of times per year the board
must meet

10.
The Primary Responsibility
The primary responsibility of your board members is
to represent all shareholders—not merely their
individual interests. You will often hear this described
as a fiduciary obligation.

11.
The Fiduciary Obligation
A fiduciary obligation is composed of the three legal concepts:
• Good Faith: The presumption that all directors will deal
honestly and fairly when making decisions, regardless of the
outcome.
• Loyalty: Directors must put the interests of the company
ahead of their personal interests.
• Duty of Care: Attempts to define a standard, often referred
to as the business judgment rule, whereby a director owes a
duty to exercise the judgment an ordinary person would use
under similar circumstances.

12.
Investor Board Members
For venture-backed companies, investors will
typically exercise control over their investment by
requiring:
• One or more board seats
• A series of protective provisions
• Special voting rights spelled out in the investment
documents

13.
an example:
The sale of a business may require your investors’
consent.
A subtle (and often misunderstood) distinction is that
it is perfectly acceptable for your investors to vote in
favor of something as board members, but block the
very same activity by exercising their voting rights or
control provisions.

14.
The Foundation of Your Board
The concepts of fiduciary obligations and voting
rights may seem foreign at first (or even like overkill
for an early stage company).
If properly observed, they form the very foundation
of your relationship with the board—and through it,
with your stakeholders.

15.
an example:
There will be times (e.g. when raising capital, selling
the company, or taking it public) when your
stakeholders may question if you have properly
fulfilled your obligations to them, so developing,
understanding, and acting on these basic
principles will serve you well.

16.
The Next Area of
Consideration
The next area entrepreneurs should consider when
building a board is how to best compose the board.
See our next deck, The Entrepreneur’s Guide to
Composing Your Board.

17.
Learn more!
Visit http://avalon-ventures.com/blog for more actionable advice
on early stage startups, VC funding and other entrepreneurial tips.