Once you have recruited or re-structured your board of directors as part of the financing, make sure to establish a good working relationship with them.
Board meetings with your directors
You must hold regular board meetings to discuss the business of your company. The following tips from Guy Kawasaki’s The Art of the Start and Reality Check can guide you as you cultivate your board, especially with respect to board meetings:
Save trees: do not bury your board in documentation or paper
Your board of directors is busy and you want to make sure that you are using their time wisely. Your accounting and financial reports should be about five pages long and include a profit-and-loss statement, cash flow projections, balance sheet, and a list of your accomplishments and milestones.
Provide useful metrics: financial and non-financial
By themselves, accounting and financial reports do not adequately tell the story of how the company is doing. Non-financial metrics are equally important in terms of updating the board on your progress—include metrics such as the number of customers, installations or visitors to your site. But do not let this information add more than three or four pages to your materials.
Send these reports two days before a board meeting
The purpose of a board meeting is to discuss strategic issues, not to restate the factual information contained in your reports. Spend meeting time thinking about how to improve the facts you’ve provided in your reports. By sending the reports in advance, your board members will have an opportunity to review them in advance. Keep in mind that it’s useful to review reports in the meeting as not all directors will read them beforehand.
Never surprise a board (except with good news)
If you have bad news, it is best to meet with them privately in advance—or call them to speak one-on-one—to explain what happened and outline the situation. Be candid with your board members at all times.
Get feedback in advance
Always prepare board members in advance of key decisions, keep them informed and talk with each of them individually prior to a meeting to make sure that they have all the information they need. This process might also provide you with useful feedback that could change your mind or approach.
Hold board meetings first thing in the morning
You will be much more effective and it makes you look like the early bird.
Get the official matter out of the way at the start of the meeting
It’s best to get the routine administrative matters out of the way. You might not have quorum later in the meeting if some of the directors had to leave the meeting early.
Most boards want to know:
What’s going right?
What’s going wrong?
What do you want the board to do?
Present solutions, not problems
You are the best person to run the company so take your best shot and then present your solution for feedback and make any agreed upon modifications.
Use your directors as valued advisors between meetings
Other aspects of working with your board
Oversight: remember you now report to a board of directors
Once you take money from outside investors and establish a corporation with outside board members, you no longer work for yourself—you now report to a board of directors. This is a very important concept to internalize.
Your board of directors has the responsibility to ensure that the company is being properly managed and the authority to make management changes if they do not believe the company is being properly run.
Always remember to get the board’s commitment before you make a major decision. In addition, the board has the right to act independently and may want to meet on their own.
Insurance for your board
Independent board members will not sit on your board unless you have appropriate Directors and Officers (D&O) liability insurance. D&O insurance provides financial protection for your company’s directors and officers if they are sued in conjunction with the performance of their corporate duties. This requirement will have been detailed in the term sheet and is required prior to the closing of financing.
Many independent board members will expect some sort of compensation for the time and value they are providing to the organization. The appropriate equity range might be from 0.25 to 0.5%. For someone exceptional, you might want to go as high as 1 to 2% (likely as part of the ESOP plan). You will likely have to cover their expenses (travel and other) for attending the meeting. If it costs more to get the candidate on your board, move on. They are more interested in making money than adding value to your organization.
Houston, T., Johnson, A., & Smith, E. (2006, September 15). Technology Startups: A Practical Legal Guide for Founders, Executives and Investors. Retrieved April 13, 2009, from Fraser Milner Casgrain website at http://www.techstartupcenter.com/
Kawasaki, G. (2004). The Art of the Start: The Time-Tested, Battle-Hardened Guide for Anyone Starting Anything. Toronto: Penguin Canada.
Kawasaki, G. (2008). Reality Check: The Irreverent Guide to Outsmarting, Outmanaging, and Outmarketing Your Competition.Toronto: Penguin Canada.