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.
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 2 of a four-part
series by Avalon Ventures on
how to build an effective board.
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. 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. 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. 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. 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. 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. 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
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. 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. 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. 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.