“This looks pretty startup friendly,” Marsha, our attorney, said to me when I sent her our term sheet. “There are no crazy terms, and the board composition looks reasonable.
“I think this is pretty clean,” Marsha concluded.
“What about the board composition?” I asked.
“This is pretty standard. A five man board. One seat for you, one seat for each of your investors, and two independent board seats.”
“Great,” I responded.
Your investors will likely be in no hurry for you to fill the independent board seats.
We started operational life as a company with a three man board consisting of me and my two investors (Gill and “Raul”). And this may surprise you, but my investors weren’t exactly pushing me to fill the empty board seats.
The issue never came up in those early months. And the more board meetings we had, the more irrelevant the issue became to me. The reason was…
Early on, your board really doesn’t have much to do.
I know this may be a surprise, but your board doesn’t really control the company, you do. You’re not going to have long strategy sessions with your board. In fact, early on your board members are there to provide oversight and not much else.
We would start our board meetings on Thursday at 9AM. The agenda was pretty straightforward. You should probably follow a similar agenda:
A. CEO’s Summary.
This should be in bullet form. I would go through the highlights, lowlights, end market update, and any M&A activity.
B. Marketing and Sales.
If you have a VP of Marketing, then this person should give the marketing update. The same for if you have a VP Sales.
This is a time for your board to get to know your executive team. Your executive team should have goals they are committed to achieving, and their report should be an update on their performance to their goals.
Then they should detail what the next set of goals are before the next board meeting. The goals should be important enough to share with your board.
C. Engineering Status.
This is probably the most important update early on in your company’s life. If you’re having trouble executing your engineering plan, then your board is going to start asking lots of questions. Again, your VP Engineering or CTO should present this update.
The update should be a detailed review of the engineering schedule. Plus an update on the engineering VP’s goals including recruiting.
D. Operations Status.
You may not have an operations update if you are a software company, but, for a hardware company like us an operations update was mandatory. Operations for a semiconductor company is the “backend,” or the the manufacturing, testing, and quality assurance part of your company.
Again your VP Operations, if you have one, should present the update.
Now that your team has updated the board on the company’s status, the meeting turns back to you.
E. Finance Status.
I liked to do the financial update in the closed, private, session of the board meeting. I would go through the financials in detail with the board.
I would share a detailed balance sheet, income statement, and cash flow statement with the board. I would update the revenue plan as well.
Then I would go through the “waterfall” charts of the various areas of the company. Here’s what a waterfall chart looks like if you’ve never seen one:
The one above is for our operational expenses. The top line is the original budget. The gold boxes going diagonally are the actual numbers. The rows are the monthly plan for the year, and the columns are the month for the plan.
The idea is that your board gets to see how your plan has evolved for the various areas of the company over time. You can see here that we started with a plan of spending $3.233M for the year, and we are going to spend around $3M.
You should do waterfalls for the following areas of your company:
- Cash Balance (kind of an important one)
Now your board has a complete view of the financial status of your company and the individual areas that influence the finances.
F. Executive BOD Private Session
This is your board’s time to give you feedback on how things are going. Now, if you’re following best practices, then you’re already having 1:1 meetings with each board member before the board meeting.
These 1:1 meetings are where the real feedback will come. Yet, your board may want to weigh in on things that happened during the meeting. This is their chance to do so.
The private session is also the time to get your board to approve any stock option requests you have. I liked to present the grant amount, and then contrast that with the market rate for the role, so the board could understand whether we were at the high end or the low end of the range.
G. Non-Executive BOD Private Session
I like the idea of having a non-executive private session on the agenda because you are indicating to your board that you are okay with them asking you to leave the meeting, so they can talk about you. The reality is your board will have no problem asking you to do this, but I like the idea of adding this section to agenda for the reason I stated above.
Usually, the board meeting at the end of the executive private session. The goal should be to complete your board meetings in under two hours.
You’ll need your board to approve any independent board members you add.
We went about one year with the three man board. I started feeling like it might be advantageous to add an independent board member.
Gill was fine with the idea. Raul pushed back. He was fine operating as a three man board, but he said, “If this is what you want to do, then I’ll support you.”
I came up with two candidates for the open board seat (Cathal and Bill), and Gill suggested Barry for the open board seat. Yes, you’re going to have to interview candidates your board suggests too.
Raul didn’t like Bill, so he was out. I really liked Barry, but I wanted an ally, so I pushed for Cathal, who was a friend and CTO of Cypress Semiconductor at the time. Gill liked Cathal, and Raul liked Cathal too.
Cathal joined the board about one year after we started operations. We ran as a four man board for about another year. Then I needed someone with a deep sales background, and I added Barry who had run sales organizations for Intel.
So, no you can’t just add anyone you want to your board. You actually do have to get the approval of your board members. More importantly, if you want to have a good relationship with your board, never surprise your board. But that’s another story…
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