~ 7 min read

How to 'Talk Boards' with Early Stage Companies

FTX Implosion: Just another day in Venture

The meltdown of the FTX exchange and related companies this past week (early November 2022) saw a family of companies that had been valued in the tens-of-billions evaporate into a bankruptcy filing.

It didn’t take long for people to ask “where was the Board in all this?”

And then to realize: there was no functional Board.

So now every VC who hopes to raise a fund in the next three years is scrambling to implement a governance review and board best practices across their portfolio.

And this is a great thing.

But there is a right way and a wrong way to have those conversations, and below are a few tips for how we’d recommend VC’s and Founders engage.

What Not to Do: Talk about FTX

VC friends: if you do anything, don’t lead with FTX.

Like everyone, your companies have probably already spent too much time on Twitter, reading the Vox piece, and generally discussing the topic. They know.

More importantly, you don’t want the Board to be positioned as ‘adult supervision’ becuase let’s be honest: that doesn’t win hearts and minds.

If we’re honest, at the root of FTX’s failure to have a Board was a mutual agreement between those investors who backed the company and SBF’s desire for unsupervised autonomy.

Few people talk about it, but the VCs knew it was risky and perhaps didn’t want to be too close to the behavior themselves. See for example here: “Investors Wary of Board Seats at Crypto Startups Due to Legal Risks”

So to solve the root cause here, we need a stronger case for why a good board will make everyone more successful.

Avoiding activities that land you in jail can just be an unspoken bonus.

Focus on the Upside for the Company

What everyone wants to do is win. And a great Board can help with that.

As Jeff Bonaforte explains well in “The Secret to Making Board Meetings Suck Less” cf. quick summary and source here, the simple act of reframing the Board’s purpose as helping the company and CEO succeed can on it’s own unlock value.

Where else are you going to get a highly talented and well-connected group of people to work for basically free (apart from Independents - who should be comp’d in stock; not cash btw)?

During good times, a strong Board will help a CEO see over the horizon, gather market intel, help open doors in key accounts, and provide the social validation to help expand your investor syndicate.

During the bad times - and every company goes through them - a strong Board is one of the few friends you have as a Founder / CEO. It can be incredibly lonely in these moments, and having people around the table who have seen similar situations before and can help provide a sounding board and inform good decisions might be the difference between your Company surviving or not.

It’s hard enough building a company from scratch, and Founders (and early stage investors) should want every advantage they can get. A strong Board is free value - even from a purely self-interested perspective.

Design Your Board Like a Sports Team

People matter for Boards. If Founders think that Boards are just a “tax” (which some do), it’s probably because they have experience with a badly staffed Board.

Good news for early stage companies: you have maximum freedom to design your own destiny on this.

As a Founder, you are in all liklihood one of the initial Board Members of the company.

So as a Founder-Director, your #1 job is to build out the Board team.

This is similar to any team. You want to have all the key players, aligned around a shared desire to win.

The opposite of this are Boards that end up either A) all Founders / management, or B) all VCs. Both are bad, mostly becuase you don’t get varied perspectives. Which results in less-good decisions.

Who are the right players? Well there’s only one must-have: The Board Builder.

Be (or get) a Board Builder

Make your “first Board Member recruit” your “Board Builder.”

This is a pro-tip I got from Andras Forgacs at Modern Meadow Linkedin. He has a great board (in his founder/CEO view) largely because he had help building one.

Early on, he added David Shaw - and experience investor and operator who built IDEXX - to join the Board. In subsequent rounds, David helped convince the lead investors to designate a relevant Independent with specifically desired skills instead of taking the seat themselves.

As a result, Modern Meadow was able to avoid the class “All VC board” that is all too common.

This is a great role for a seed/early stage investor to play - either by being the Board Builder or by helping find one.

The reason it works is because it 1) provides the already-busy Founder someone to share the load of recruiting strong independents, and 2) has the request for VCs not taking a Board seat to come from someone other than the Founder (which just works better).

Where are these amazing Board Builders and how do you get one? They’re probably in your network if you look. They’ll have credible experience as both a CEO and an investor, plus a large network.

Most importantly they’ll believe in both the company’s mission and the improved likelihood of success with a strong Board.

But if you can’t find one, email us and we’ll hook you up. Yes, we’re keeping a list.

Turn Your Governance into Marketing Edge

Finally, the last key message is that Good Governance is a great recruiting tool. And you can put it to use right away.

On the employee side, there’s a lot of talent on the market - but the best talent will always have a choice of where to work. And top talent is smart: they’ll know that having a strong board will increase the probability of success and minimize the risk that they get caught up in an FTX-like meltdown or Twitter hardcoring.

On the customer side, there’s certainly more people aware of ‘counter party risk’ these days. Whether you’re handling customer data, critical supply chains, or just selling ice cream cf. Blue Bell creamery case - a good board means a better partner. If you’re head-to-head with a competitor, identify one of the biggest common risks between the two of you and use your superior governance to win the toss up.

And finally on the investor side, for the next couple years at least (until the next big upcycle), every company will be getting goverance questions.

If you’re the company that shows up in due-diligence with a 100% GoveranceScore on Bosware and all your ducks in a row, that will earn an extra mention around the Investment Committee table.

A Great Board is for Founders Who Want It

As wise friend liked to say, “change is for the people who want it, not those who need it.”

Great Boards are the same. It’s a choice to build a Board, and not let one “happen to you.” It’s a choice to make that Board as excellent as possible.

If you’re an early stage Founder - or an investor / supporter of one - make the choice and proactively build the very best Board you can.

If you need any help, or even just a friendly sounding board, come say hi any time.

hello at bosware dot io.

#KeepBuilding friends. Build well.