You have got a great idea for a solution, formed a startup with your partners – who might just happen to be your best friends – and with some luck and support from your family, friends and perhaps an angel investor or two, are well on the way to making your vision a reality. By this point of your startup’s life cycle before the seed stage, it may be the case that you still have not formed a board of directors since there’s really no need for it as yet. Even if there is a board, it is usually a small one with perhaps three seats for the founder, co-founder and an angel investor.
Now that your startup has reached the stage where it is prepared to go even further by organizing its first ever significant round of funding, the seed round, the question that naturally arises is; should the startup set up a formal board at this stage of seed round funding? While some founders may consider it still too early for establishing a board, there are several reasons why having a high-functioning board at the startup’s seed round funding stage can be of immense benefit for your fledgling company.
Generally, here are the reasons why a dedicated and committed board will enable your startup to perform at a higher level during this stage:
- Provides a periodic overview and summary of your startup’s quarterly or monthly business performance for the last period, which can be useful for determining where the company is currently at in relation to set goals and objectives.
- Frank discussions with your partners, co-founders and important seat members to strategize appropriately for your organization’s next move, what new goals it wants to accomplish, and which direction it wants to head to for the immediate future. It helps very much if one of the board seats are filled by a trusted investor that can dedicate their time to help guide and mentor you.
- A board filled with capable, dedicated members that can function as a team and work hard towards achieving your startup’s goals and vision is a definite blessing. What’s more, a diverse board brings a lot to the table as they can expand your horizons and expose you to new opportunities and ways of doing things that you may otherwise not be aware of.
At this point in time when your startup is just at its seed stage, it is highly advisable that you keep your board founder-dominated. Usually the board at this stage will consist of 3 seats, with you and a co-founder filling the 2 founder seats, and perhaps a seed investor occupying the last one.
Now, the seed investor may ask for a permanent board seat. If they invested a significant amount, say US$1 million out of the total US$1.5 million raised, you can definitely be assured that they will require a seat at your startup’s board. There’s really not much room for pushing back if there are only a few options for your startup to access capital. If, on the other hand, there are various sources of funds and capital available to you, then you have the leverage to refuse their request for a board seat, or alternatively you can offer them a temporary seat with terms that are favorable to you.
The choice of whether to give your seed investor a permanent or temporary seat will hinge on how useful and productive you think the investor will be for you and your startup. Some investors with years of experience and expertise in your startup’s field or space can provide mentorship and guidance that’s very much beneficial. On the other hand, investors that lack the qualities and experience that you want may end up hindering your startup as the seat they fill diminishes founder control and makes it harder for you to retain control as your startup gradually raises more significant rounds of venture capital later on.
Ultimately, having a high-functioning, experienced and dedicated board will enable your startup to grow and thrive at the seed stage. The benefits and advantages of having the proper board for your startup far surpass the effort and time required to get it set up and running.