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Startup Boards: Forming & Organizing Your Board



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private company boards tend to range in

size from very small to in some cases

very large the typical size of a private

company board is somewhere between three

and seven board members there's a lot of

Mythology around having an odd number so

that you never get deadlocked on votes

it turns out that because especially

with investors the notion of how the

votes actually work and who has what

rights that the odd or even number of

board members tends to matter very

infrequently when you have three board

members you often have a founder an

investor and an outside board member or

two founders and an investor or two

founders an outside board member you

always want to have at least one outside

board member that's a really powerful

thing because you need an independent

board member that doesn't have either an

ownership stake through a major

investment in the company or an

ownership stake through being a founder

in the company that allows you to deal

with lots of situations where you need

an independent vote where you want

somebody who's not directly involved in

the economic outcome this doesn't mean

that they can't have any economics in it

but that their economics are minor and

it's very easy for them to be viewed as

an independent director what you often

see is boards especially as they raise

more money they become very investor

heavy so you start off with a nice

balance board between investors and

entrepreneurs and all of a sudden you

wake up one day and you've got seven

board members you know the CEO an

outside board member and and for

investors or five investors those are

not particularly good boards in terms of

balance because then they would they

shift way too much towards investor

engagement on the board versus acting

like a true board that's helping the CEO

and helping the leadership team as an

entrepreneur or a founder you really

want to try to maintain balance between

the entrepreneurs and the investors the

best way to maintain that balance is to

think about it as having a founder board

member or a management board member for

each investor board member

and then filling in the rest of the

board with outside board members it

doesn't have to be exactly equal but you

want it to be a situation where there's

plenty of balance around the table and

different points of view being

represented

private company board member

compensation should be very

straightforward first of all you should

never pay a private company board member

cash as a startup company that's growing

cash is extremely valuable to you what

you should be willing to do is pay that

board member in equity similar type of

equity grant that you would give to a

senior exec the best way to describe it

is think of what you would give a VP

level person and divide by two that's

roughly the amount that you tend to give

to an outside director in addition you

should be willing to cover their

expenses for coming to board meetings or

doing any sort of board business and

this is for outside directors for VC

directors you should simply be willing

to pay their expenses for coming to the

board meetings but they shouldn't get

any additional equity for sitting on the

board the best way to enforce the - -

for your board term is to create vesting

of the stock that you're giving to that

board member over that period of time

what I think is pretty typical is to

have a four year board term and let's

say you're granting to that board member

half a percent or one percent of equity

that's going to vest over that four year

period by having a two or four year vest

on the stock that gives you an endpoint

at which to have the conversation with

the board member I'd like you to stay on

the board for another two years I'd like

you to stay on the board for another

four years here's another grant or the

four years is up and you know I'd like

to replace you with somebody else at

this point

some boards have an explicit leader of

the board sometimes that's called the

chairman sometimes it's called a lead

director you as the CEO can enlist that

lead director in helping manage the

interactions between the other board

members in managing the time dynamics

around the board meetings in helping

make sure that the important thing is

gets surfaced having a single point of

communication between the board and the

CEO about issues that the board is

concerned about with regard to the CEOs

performance