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On Capital and Control in Startups
No Board Seat for You
Why companies & VC would be better off without VC on the board
TLDR: Contemporary Startup boards generally represent the different shareholder classes. As the company grows and raises additional rounds of investment, investors gain more and more control of the company through board appointments. This leads to boards who often lack the operational and subject-matter expertise companies need to surmount obstacles, and drives conflicts of interest that affect fiduciary responsibility. Startups and Investors can avoid these challenges and build better companies by appointing independent industry experts who can provide sound strategic advice to help the company grow while freeing up investors to make independent investment decisions in subsequent rounds.
If you’ve ever raised money from Venture Capital (VC) — or work for VC yourself — you know there is an underlying assumption the VC leading the round will get a board seat. The idea is that the VC who prices the round (and in doing so determines how much of the company’s equity can be purchased for a particular dollar amount) should be the same person who appoints an individual to sit on that company’s board to “ensure the value of their investment.” That board member is usually either the VC themselves, or…
