Your independent board members will typically be other operators or entrepreneurs with relevant functional experience (e.g., a former CFO) or industry experience. While some series A investors won’t push for the independent seat to be filled for a while (or, in some cases, at all), others will push for a faster addition to the board. Please note: this will be one of the most important people you “hire”—and it will be hard to remove a director once you add one. Proceed carefully and deliberately through these critical steps:
1. Write a job spec.
It bears repeating: this is one of the most important people you will hire. You should write up what you would optimally want in a board member by drafting a checklist or hiring spec. This should include:
Experience—which may include:
- Operating experience. Do you want someone who has operated a company at a certain scale or has started a company herself? Can the prospective director share process or management best practices with you? What can you learn from him or her?
- Market experience. Is there specific domain or market expertise you care about at the board level? Is the prospective director in the information flow in ways that will give you a competitive advantage? Can she provide intros to people in the market who can help you?
- Functional experience. Do you want specific functional experience (e.g., an ex-CFO or VP International Sales)?
Depending on your existing board and experiences as a founder, you may or may not care about market experience, functional experience, or operating experience. Or you may be willing to trade these off, as it will be hard to find the perfect person.
Involvement with other high-growth companies (optimally as a founder). People who have not seen a company go from two people in a coffeehouse to a multi-thousand-person organization aren’t used to all the bumps in the road that this entails. Things will always take longer and always be rougher than expected. Most startups face at least one moment, if not more, that feels like an existential crisis, where the company faces death from competition, excessive burn, government regulation, or other issues. And, unlike at a large established company, natural momentum won’t necessarily exist. At an early-stage startup, each bit of execution is an act of sheer will, rather than an act of momentum. As your company matures, this will shift and eventually you may have too much momentum, with a large, difficult-to-steer ship of your own. This is of course many years down the line, and is in some sense a good problem to have. In the meantime, you need board members who understand this journey.
Optimally, if there is just one independent board slot, the independent board member would be a current or former entrepreneur. Other successful entrepreneurs will be able to relate more closely to a founder’s emotional state and provide advice based on their own experiences. They will understand the “newbie” nature of being a founder/CEO and be open to answering “stupid questions” without condescension or judgment. They will have firsthand knowledge of how to build a business and understand that the bumps along the way are inevitable.
Finally, successful entrepreneurs can serve as a counterweight to the VC board members in a way that benefits the company, and hence also benefits the VC. If an entrepreneur board member is successful enough, the VC is unlikely to have much leverage over them—they already have lots of money, strong personal brands, and others who will work with them. The VC cannot exploit a power dynamic to force a truly independent board member to side with them on contentious board business.
Raw intelligence. This is self-explanatory. Some folks, such as Marc Andreessen, Reid Hoffman, Mike Moritz, and Vinod Khosla, are known for their raw intellectual horsepower. Notably, the former two took board seats or made investments prior to becoming full-time VCs.
Business and strategic sensibility. Ultimately a high-growth company board will face a number of core business and strategic questions. Will they help you navigate the strategic landscape, understand how to use M&A at scale as a tool, or have deep insights into product pricing or other aspects of running a business? Many founder CEOs also need input into team management and operations that a business-savvy independent may provide.
Entrepreneur-friendly orientation. A number of VCs will suggest a “friend of the (venture) firm” as your independent board member. These people will often owe the VC more than they will ever owe your company, and when shit hits the fan they’ll vote with the VC. In other words, the “independent” board seat will in reality be an investor board seat, and you will lose control of the company (see “Avoiding a VC crony” below). To avoid this, you ideally want an independent board member who is sympathetic to your aims as an entrepreneur, not just to the VCs’ fiduciary duties.
On the other hand, you do want to find someone the VC respects and will listen to. Optimally, the entire venture firm that backed you knows this potential independent board member. The best scenario is to find someone that your VC respects, but who you know is an entrepreneur at heart or who will at least be more entrepreneur- friendly. In the best case, you will have a preexisting, long-term relationship with this person, which will help you trust each other when the company inevitably hits a hard spot.
Respect of investors/VCs. Part of the independent board member’s role will be to remind VC board members that they should be voting in the company’s best interest (rather than each investor’s own best interest). He or she should have the confidence and insight to push back on the VCs when it makes sense to do so. The independent should help keep the VCs “honest.” This does not mean the independent should rubber stamp the founder’s every whim. Rather, he or she is there to do what is best for the company and to remind the VC members that their purpose should be the same.
This is easiest to accomplish if both the VC and the founder respect the independent board member. Both of you should spend a lot of time with candidates for your board before adding them.
2. Agree on the spec with your investors.
Once you have defined what you want, discuss it with your investors and get agreement on the spec. This helps you call bullshit on them (e.g., when they offer up a friend of the firm with no relevant background) and lets them call bullshit on you and keep you honest (e.g., when you suggest your best friend from high school).
3. Create the list of options.
Make a prioritized list of people you would most like to add to the board. You can use an executive search firm which specializes in board members or ask your investors, advisors, or other entrepreneurs for suggestions. Your board members are optimally people that you wish you could hire for the company, that are truly out of reach otherwise.
“Your board members are optimally people that you wish you could hire for the company, that are truly out of reach otherwise.”
– Elad Gil
4. Spend time getting to know the potential board members.
You will get a lot of pressure from your investors to finalize the board, but don’t be afraid to push back and make sure you take the time (many months) to find the right person. You would not rush to hire a crappy engineer “just to fill the spot.” With a board member (who will be more of a pain than a bad employee) this becomes even more important.
Have some questions and topics ready to discuss with potential board members:
- Ask them to discuss key directions for the company. Do they align with the vision and approach you want to take? Do they have key insights or interesting feedback?
- Ask how they will help the company. Where will they pitch in? What are they good, or bad, at providing?
- Ask about their goals and aspirations. What do they want to do with their career or life? How does the role on your board impact this?
- Ask them to do something for you. Try to put them to work and see if they will help with something relevant to their experience. You could hire them as a consultant for a project in your area of expertise. Or, for a more lightweight test, ask them for an introduction to someone in their network, ask for their help and advice on structuring a deal, or have them spend some time advising you on a current strategic issue you’re facing.
5. Check personal rapport and attitude.
This is really important. You as the founder(s) should have great personal rapport with the independent board member. He or she should be someone you feel you can trust—who you would feel good about calling at midnight on a Friday—and someone you think will be able to help you grow the company and, ideally, grow personally. This board member should be someone who, if circumstances were different, you would be excited to start a company with.
When assessing a potential board member’s attitude, there are a few things to avoid:
- The condescending, gray-haired operating executive who sees you as a “bunch of kids” and who views herself as part of the “adult supervision.” This typically leads to unnecessary oratory by the board member or the founder getting fired as CEO and replaced by some visionless “operator.”
- The micro-manager who confuses being on the board with being your boss.
- People interested in the role for the potential financial reward rather than the excitement of helping you build a business.
- People who simply want to “join a board” so they can increase their own personal stature or start to take more board seats themselves.
- People who want to join your board so they can network with, or get to know, your investor board members. (This can lead to disaster, as they will side with an investor over you to curry that investor’s favor.)
- The VC crony. More on this below. It is important and common enough to deserve its own section.
6. Check alignment of vision.
Does the independent board member understand where you want to take the business? Is he or she aligned with that vision and direction? You want someone who will support that vision rather than second-guess it. Similarly, you want someone who will take a long-term view to building a great company (assuming that is your intent), rather than focus on a short-term flip.
Look at prospective board members’ backgrounds: What has happened to the companies they have started or run? Did they sell early, and if so why? What other choices have they made in their careers, and how thoughtful are they in hindsight about those decisions?
7. Check references.
What do people who have worked with your prospective board members think of them? Are they high integrity? What are they helpful at? If they are already on boards, what do the entrepreneurs they work with think of them?
8. Finalize who to add.
Optimally you will take a “common nominates, preferred stock approves” approach to adding the independent board member. Just like with the Supreme Court—where the president nominates the justices and Congress approves the nominations—the balance of power lies with the nominator (thanks to Naval Ravikant for this analogy). Your VCs may have some great suggestions for board members (and you should definitely ask for their opinion). But ultimately you want to be driving the final “election,” and to do that, your biggest point of leverage is in who you nominate.
Like any other member of your team, the independent board member may eventually lose their usefulness beyond a certain scale of company. A public company board tends to look and act differently from an early stage startup board. If you control the independent seat, you may want to change people out if their skills and insights lose relevance. 1
Avoiding the VC Crony
Venture capitalists will often push cronies, or people who owe them, onto your board. Effectively they are trying to turn the “independent seat” into an additional seat that the VC controls. There are a few common ways to spot a VC crony:
- The VC has worked with her a lot in the past or sits on her board, or she is an executive the VC has placed in a company before.
- She has worked at multiple companies backed by the VC. yyShe sits on a few boards with the same VCs.
- She does not have relevant experience, does not understand your product, or makes generic comments rather than insightful ones.
- She is likely to get placed in her next job by the VC (e.g., a VP of Sales who wants to become CEO).
You can decrease the likelihood of adding a VC Crony if you follow the steps on this post (and convince your VC to follow step 8 above).
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