A few days ago, WSJ’s startup & VC blog referred to an NVCA study where entrepreneurs complained about the lack of operational experience in some VC board members.
I’ve been an entrepreneur as well as a VC. The biggest travesty that VC firms can visit on a portfolio company is putting an inexperienced representative onto its board. Too many VCs have no real operating experience (sorry, having been a I-banker or recruiter does not count as experience).
I think this is an overly simplistic way of looking at things. Here is a quick test. Which one would you choose as your VC board member for your pre-product Series A startup:
- A really experienced former CEO who can’t get used to being a board member and thinks he can run the company better than you
- An really experienced former head of sales who has scaled companies from $10M on several times but who has never been in a pre-product startup
- A former lawyer or banker or accountant who’s had more than a decade of experience as a VC and a fantastic early stage investment record.
Not sure about you but, assuming the personalities work out well, I’d go with the VC w/o operating experience any day of the week. In fact, my first startup, Allaire, went exactly this way.
- Comparing between board members is very, very hard. Especially if you don’t have competing offers to compare. Do not underestimate the impact that your investor board member will have on your life. First and foremost, talk to good people with good track records. Do not get tempted by the cash. I know this is very hard to say in the abstract but it is true. Go talk to CEOs of companies who’ve had a serious falling out with their investor board members. Listen closely to what they tell you.
- There is no simple rule of thumb for comparing between investor board members. The key is to understand what you are comparing. You are not looking for a CEO or an exec. You are looking for one board member who’s part of a larger board. Boards are about strategy, governance, fundraising, exits and supporting the CEO. They should not be a crutch for your team, unless this is by design, e.g., with an executive board member.
from Start-Up CEOs Gripe About VCs’ Lack Of Operating Experience – Venture Capital Dispatch – WSJ.
Building a good Board is like thinking about a baseball lineup. Would you rather have a Board of 5 Manny Ramirez’s, or a Board of Beckett, Pedroia, Youkilis, Bay, and Elisbury? How can you answer the “quick test” without knowing the other players?
P.S. I don’t think they would let you write the multiple choice for an MCAS test!
Ralph, you are absolutely right–the goal is to have a strong, independent board that’s well-suited for the company and its current and future (!) leadership.
The task becomes particularly complicated when you have a limited set of choices that don’t mesh well with who’s already on the board.
I think the answer to this question often depends on what the entrepreneur/CEO thinks or knows are his/her weaknesses where help is needed. Also depends on the experience profile of the CEO and the board members – – how they might compliment each other.
Gary, this is definitely one area to think carefully about.
Also, the board should be built for the company, acknowledging that the CEO may change for any number of reasons.
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A related issue with boards of VC financed companies is that they tend to have multiple VCs on the board. Even when they are all good, the company tends to get the same point of view repetitively. I am not sure there is cure for this because each investor wants, and deserves, board representation. You can always make the board bigger, I suppose, but then other problems of board management creep in.
Again lots of good points here. I would add that CEOs should find out how dedicated the board member would be.
We had a great board member ex-entrepreneur with several exits under his belt. He would take senior managers to lunch and breakfast on regular bases. That simple act helped us retain key figures in our business and ultimately helped us stay profitable through tough times.
Good point, especially since it’s very hard to remove board members.