What Entrepreneurs Should Demand from their VC Board Members

By Martha Notaras, Partner

I recently heard from an entrepreneur who is in the middle of fundraising. He made a remark about a venture capitalist who was interested in investing in his company: “Based on their questions and tone when discussing the investment deck, I don’t want that person on my board.” That comment made me think about how important it is to get more than just money from investors, and what a CEO must have from their board.

My perspective is based on 25 years of investing in early and growth stage companies, including being a member of 20 boards and chairing a quarter of those boards. I also served as interim CEO at one of my portfolio companies, so have had a view from both sides of the table (the CEO side is harder, in case you are wondering). Fortunately, most of those boards have worked well together, airing differences civilly, and supporting the CEO’s efforts, while providing sincere and often useful guidance and introductions. Occasionally, I have had to deal with board members who confused their shareholder interests with their fiduciary role on the board. There were also times when the board politely thanked a member for their service after it became evident that they were not providing value.

Early stage companies typically have six to twelve board meetings per year, and the CEO might have one-on-one meetings or calls with individual board members, on specific topics, in between. This level of time commitment on both sides means that every interaction needs to deliver value, because an entrepreneur’s time and focus is limited and precious.

Board members need to able to recognize how to deliver value in each board meeting and conversation. Depending on the stage and progress of the company, there are different types of interactions. Here are a handful to keep in mind.

Being a sounding board: the cliche is accurate… it IS lonely at the top. As the CEO develops a new strategy, business development approach or considers organization changes, sometimes the most valuable contribution is active listening. There is a delicate balance between nurturing the ideas that will drive the company to grow and flourish while questioning ideas that are likely to take the company off track. Rarely is this a one-time conversation; it is much more likely to occur in multiple settings. In my experience, these communications are a mix of formal board meetings, scheduled meetings or phone calls and impromptu calls.

An entrepreneur’s time and focus is limited and precious.

Challenging management: if all the board members agree with each other and management all the time, there are some superfluous bodies in the room. An entrepreneur should expect and demand that the board challenge assumptions, plans, and outcomes. That should happen in the boardroom, not in the corridor afterwards.

One of the most frequent challenges from the board to management is on the topic of spending money. Is the timing right? Is this the right investment?Should we risk spending the cash we have? Often, the right answer is “yes, this is what you raised money for.” A culture of honesty and directness saves a lot of time, reinforces mutual respect, and moves the business forward, which is the shared goal of all.

Providing insight and advice: entrepreneurs should expect to leverage the experience of its board members, including analogous business experiences. Of course, the trick is always in knowing which analogies are most accurate. An entrepreneur needs to have a keenly tuned sense of whether the historical example is relevant to the current circumstances, and should push to understand the context. Being able to benefit from a variety of experiences is also a good reason to think deliberately about board composition.

Giving tough love: sometimes the value of the board is in forcing management to focus on a problem that could be existential. Usually, management knows there is a problem, but the board may need to shine a light on the issue and engage management in solving it. This can be uncomfortable. Everyone around the board table should have the best interest of the company in mind — in fact, board members are fiduciaries for all shareholders, so they are obligated to look after the interests of shareholders.

Just as a CEO should demand accountability from its board in delivering the promised value, so should the board demand accountability from the CEO. If an entrepreneur fills the board with supportive yes people, the outcome is unlikely to be a company of lasting value. Instead, it could turn out like Theranos.

Making connections: VCs always promise connections and entrepreneurs should hold them to that promise. Each board member has their own connections, and entrepreneurs should be specific about what is being asked, whether that is to be introduced to a potential customer, investor, business partner or new hire. Sometimes it means searching LinkedIn and asking, “can you introduce me to this connection?” Sometimes it means politely turning down an offered connection that will not move the business forward, while still asking for the introduction that is needed.

One of my most successful introductions led to a recurring revenue sale that was five times the size of the startup’s average sale. That absolutely added value to the company, helped establish them in the market, and made me very popular with the head of sales.

VCs always promise connections and entrepreneurs should hold them to that promise.

Governing, not managing: A fellow board member once said to the CEO, “We are happy to discuss your thoughts about the team, but it’s your decision. The board only has one hiring and firing decision to make: the CEO.” That was a good example of an experienced board member who knows the board’s job is governance, not running the company.

The above situations are ones in which a CEO should feel comfortable demanding specific actions from their board members and holding their feet to the fire. If board members cannot deliver on these requests why do they have a seat at the table? Being a board member comes with inherent responsibility, and the associated tasks should not be taken lightly. A strong board of directors with each member providing clear value can be a powerful engine for company growth and success.