Rude VC on the Board of Directors: Control vs Support

Jul 3, 2012
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Admittedly, I still have a lot to learn about how to be a good boardmember. It’s still early days into my second career after selling my company and becoming a VC. I haven’t even witnessed a full decade-spanning macroeconomic cycle, which is a prerequisite for a venture capitalist to become an experienced practitioner. I am, however, beginning to piece together a collection of anecdotal experiences from the dozen or so boards on which I’ve served to start formulating some rude opinions on the subject.

In venture-backed tech startups, the VC firm almost inevitably demands a certain level of presence and authority at the company’s board of directors. This is not unreasonable, given that tech startups are highly risky, and the VC wants to ensure that management will be a good steward of his financial investment. The challenge when VC’s stack the board, however, is to prevent them from slipping into the natural reflex of defending their own interests as investor-shareholders in the board setting.

The CEO of one of my past investments would sometimes quip, “Is this a board meeting, or a shareholder meeting?” He was only half-joking. For maximizing shareholder interests is but a part of the over-arching objectives of a company’s board.

The way I see it, in a tech startup, the board of directors (or supervisory board in a two-tier structure) serves two primary types of functions: Control and Support.

The control function is one of reporting and corporate governance. The board is granted a certain level of rights and powers in the company, such as the right to regular financial updates, the right to approve budgets, and veto power over strategic or material decisions affecting the company’s assets. It is the board’s duty to serve as a sanity buffer, and prevent the company from doing something rash or stupid that could imperil the firm’s livelihood.

Equally if not more important is the support function of the board. If I used the board meeting to request an explanation every time the CEO misses his numbers, I would start to sound like a broken record. I believe my responsibility as a boardmember must also be to help the CEO set strategic priorities, to assist in opening access to the right people and expertise, and to serve as a sounding board on the tough issues.

If the board doesn’t create an environment in which the entrepreneur feels comfortable to share what they’re losing sleep over, it’s falling short. A board should play the complex role of cheerleader, sparring partner, coach, and guru to the management team of the company they serve. The best entrepreneurs will proactively construct their board with these objectives in mind.

I submit that VC’s in France lean too far toward the Control rather Support end of the spectrum, and I’d like to see this behavior change.