0.7.8: Beefing Up The Board Of Directors

Locating useful directors for a start-up company is difficult but often vital. While the founder, his wife, and his lawyer comprise the paradigmatic startup board of directors, perceptive organizers try to fill gaps in their business expertise by adding experienced directors. Start-ups backed by professionally managed venture firms are lucky: the investors' representative ordinarily makes an enormous contribution. Many emerging companies do not enjoy professional backing in the first round. Accordingly, with no money to pay for full- or part-time experts, a founder is often well-advised to dangle directorships, coupled with cheap stock, in front of experienced individual businessmen. In today's corporate world, as multinationals change ownership relentlessly and fashion dictates that white-collar staffs be pared to the bone, a large cohort of relatively young, dynamic, and highly competent business people have been released into the workforce. Many are loath to return to the large corporate environment; they are disgusted and enraged at the big-company culture, and they have "parachutes" which relieve them of the necessity of working full time. Thus they are prime candidates to help nurture an emerging business to maturity. Accordingly, it is becoming increasingly an integral part of an advanced venture strategy to harness the energy of early retirees, inducing them to join startup boards and fill in the experience gap.

There are subtle issues to be resolved in pursuing this strategy, however. To be sure, the engagement of an experienced businessperson to sit in a key board seat may, indeed, provide a greater degree of "hands-on" oversight than can be expected from a harassed, overworked young partner in a venture-capital pool; often the fledgling venture manager's advice can grate on the founder's ears, particularly if the board member's prior experience is limited to attending classes at the Harvard Business School. However, it may be equally troublesome for the founder to take advice from someone other than the person who put up the money, particularly a refugee from a big-company culture. A venture manager may lose vital impact and feel for a portfolio company if his advice is filtered through a retiree whose stake in the company is limited to the upside on his options. When a partner in the investment firm takes a position, his hide is on the line. He made the investment, and the founder may be more inclined to view him as entitled to lay down the law.