Are Board Meetings A Waste of Time at the Seed Stage?
Board meetings can be seen both as useful and necessary and a complete waste of time for a startup at the seed stage. In this article, we will look at 1) the seed stage, 2) evaluating the importance of board meetings, and 3) effective board meetings at the seed stage.
THE SEED STAGE
The first stage of venture capital financing is known as the seed stage. A venture capital investment is a loan to a startup firm or a small business which may have the potential for success and growth. In some cases, managerial as well as technical expertise and support is also a part of the venture capital deal. In return, the investor may receive an equity stake in the new business as well as representation on the new company’s board.
At the seed stage, the amount of the investment may be low, just enough to provide resources for initial product development, market research, building up the management team and formalizing a business plan. Commercial operations are most often not ongoing at the seed stage. Once the initial setup is complete, the company may need to participate in further rounds of venture financing.
EVALUATING THE IMPORTANCE OF BOARD MEETINGS
What is a Board?
A group of elected or appointed members, the board of directors is responsible for overseeing the actions, activities and decisions made by a business or an organization. A board has varied responsibilities depending on the nature of the business. These may include the governance of the organization by the establishment of broad policies and objectives, CEO selection and performance review, approval of annual budgets and establishing salaries and compensation scales for the company management.
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Benefits of Boards
Often, an investor in the seed stage will want to be involved in the development of the business. This may mean meeting all or a few of the investors regularly, in structured meetings. The company itself may have concerns that such meetings at this stage may be a waste of time given that the business has limited resources and decisions need to be made quickly without the need for board meetings and votes. The board meeting and preparation for it may then be seen as a waste of precious resources and time.
However, the board of directors at the seed stage can perform a range of roles. The key thing is for them to be strong supporters and advocates of the company and its vision. They must have bought into the enterprise and should be there to help in further fundraising, hiring the right people, formulating immediate and long term strategy, sort out early founder issues, and help build business partnerships and relationships.
That said, the founder or founders should be members of the board and should not quietly concede to the board in all matters. Instead, the board should be a constructive group of founders and investors who are working together to pool resources and expertise for the success of the company.
That said, there are several benefits that board meetings at this stage can offer a business. These include:
- A Sense of Accountability
Rob Go, a venture capitalist who funds seed stage companies through his firm NextView Ventures, feels that it is a good idea for the board of a company at the seed stage to meet every 6 to 8 weeks. He feels that this is the right amount of time to allow a depth to the discussions that need to be done. He also feels that it would be ideal if shorter and less formal meetings happened more frequently but considered as a personal preference.
It is true that at this stage of a company’s life, there are multiple decisions being made every single day. The benefit that a regular board meeting schedule offers is that there is an external but invested party that forces the management to stay focused on the goals that have been set and keep an eye on the long term strategy.
Another benefit of this accountability can be seen as a motivational tool for a startup team. The team has the motivation to focus on achieving a goal that has been set to then show progress to the board. It allows people to feel a sense of accomplishment and achievement, a necessary feature at the difficult initial stage of the company.
The company can use the board meetings as markers to help set an end date to individual experiments or activities. The effectiveness of a particular experiment can then be discussed and analyzed in a board meeting. A company more advanced in its operations can use the meetings to monitor the KPIs of the business and ensure that all activities continue to be aligned to long term goals.
- A Focus on Strategy
The day to day activities involved in building up a business can become so all-encompassing that they take up all the productive time that the entrepreneur and his team may have. While this level of involvement in operations is vital at this stage of the business, it becomes easy to put off planning strategically for the long-term success of the company.
Board meetings can be helpful in this regard by providing an external perspective and a period of forced calm where the strategic side of the business is planned for. Board members have the right level of interest in the business and the required information about both the business and the larger market or industry to facilitate conversations to this end. Their financial investment in the company also ensures that they have the right incentive to make sure that the business stays viable and becomes successful. A good board member should be considered an ally and not an antagonist in any way. A board member who continues to feel or act this way may not be the right fit for the company.
Governance is an important aspect of running a business, and this remains so even at the seed stage. Good governance can help keep the company on the right track by identifying potential and actual major problems in time, avoid mistakes or at best reduce their negative impact and prevent them from sounding the death knell for the company.
The entrepreneur and management team can benefit from this as informed and open discussions with board members can help make better decisions about who to hire, how much to pay them, how to budget and allocate resources among other things. These decisions, if made right at the early stages of the company, can help create a solid foundation for the company to grow from.
- Preparing for the Future
Eventually, as the business grows and goes through multiple funding rounds, a board will need to be formulated and worked with. It is good practice to set the same up at seed stage and work out any kinks associated with working synergistically with a board and making full use of its experience and expertise.
The key to success with board meetings at the seed stage are to use these as working sessions for the business rather than scheduled progress report. Because board meetings should create value for the company, the founders should set the agenda for each meeting. They should also take the lead in discussions with specified key issues. These issues can be operational as well as strategic in nature. Ideally, the board should provide advice and feedback but allow the management to make the actual decisions.
Cons of Boards
While there are some schools of thought that encourage the setup and integration of boards and board meetings at the seed stage, there are others who believe these same meetings to be wastes of time at the early stages of a company’s life. Some of the arguments for this include:
- The preparation for board meetings may mean creating materials and planning that does not appear to add direct value to the company and its operation.
- Though the meetings can be helpful, this same help can also be achieved through either emails or meetings on an ad-hoc basis.
- Founders of the company have control over it and should not need to report to anyone else about their decisions and activities.
Other important considerations of the impact of the board at the seed stage include:
- Boards May Begin Running the Company
If the management team and founders are not as strong as they need to be then a vicious cycle can begin. This cycle starts with the management believing that they are responding to a board directive resulting in them chasing after a goal, a target or an activity that may not be needed or be beneficial for the company. In the next meeting, the board may have other thoughts that will send the management running after a new target. After a few iterations of the same situation, the board will wonder why the company appears to have little or no direction and coherence in its activities and targets. This may result in chaos, a lot of wasted time, energy and scarce resources. This is, of course, the worst case scenario where the management team is not able to glean useful feedback and incorporate it into their strategic vision. The board in this situation is also not able to provide the right direction and effective governance.
- The Need for Guide
Matt Meeker, a venture partner at Resolute Ventures believes that a board filled with investor-directors can be a big negative for a company in the seed stage. Instead, he feels that what is required at this stage is a key investor who will take on the role of a mentor or a guide for the company. This person will give advice where needed and this role can be practically implemented in a variety of forms. One of these is as an informal partner and support to the startup CEO. With the right amount of trust, the CEO can call up the mentor to discuss any issues of concern, or to just work through a though process. The CEO of a startup can be a lonely role to fill so the mentor can work towards lessening some of the burdens.
This same mentor can help the founders take a moment to think about the bigger picture and focus on long-term strategy of what is to be achieved and how this is to be achieved. This knowledgeable mentor can help chalk out the plan from seed stage onwards by helping chose the right milestones, brainstorming ideas, understanding and learning from setbacks, provide input about the market and the wider industry, help understand funding options and plan for them by perfecting the pitch, its timing and process. This mentor is invested enough in the firm that the success of the business is closely tied to their success.
This same mentor should eventually understand when he is needed for his support and expertise and when the founders and management need to be left alone actually to work on the products, the company, and the business operations. This becomes a key aspect of disagreement with board meetings as there are times when there may need to be regular communication with a mentor while other times of quiet where the actual work needs to be done without interruption or interference.
Since this role can be performed by an individual, perhaps as effectively or more so than a board, the importance of a board is then significantly reduced. A board can become inefficient at times, with discussion on simple ideas or less important activities taking up important chunks of time. The board remains an important aspect of a business in the seed stage but the amount of board meetings should be reduced significantly.
What Does a Board of Directors Do?? – Ask Jay
EFFECTIVE BOARD MEETINGS DURING SEED STAGE
If a startup and its investors decide that a board meeting setup is the one that works for them, then there are some important considerations to ensure that these meetings are as effective, efficient and useful as possible.
The Structure of a Board Meeting
A good board meeting should have the following basic structure:
- The entire board package should be communicated in advance to the board members. This can include an update since the last board meeting. The board package should be the right balance of high level strategic and low level tactical information.
- Within the meeting, there should be three clear sections:
- The first 30 minutes should be dedicated to administrative matters, and Q&A on the board package sent before hand
- The next two plus hours can be used to discuss five important topics. The CEO or founder should set this agenda and the discussion should be in depth.
- Executive Session. In the end, there can be a session of just the CEO with the board where sensitive matters and feedback can be discussed.
The board can then take a few minutes on its own at the end to conclude any conversations and discussions. The management team should also have a session with the rest of the company on the discussion in the board meeting to make sure that everyone is on-board with progress, and there is no sense of closed door communications.
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