Once You’ve Raised a Series A, Add an Outside Director

I’ve seen an unexpected benefit to founders of Homebrew’s ability to serve on your Board from Seed until B Round — you get an easy opportunity to add an outside Director earlier than most startups. Let me ‘splain.

If you have a seed fund and/or founders who aren’t interested in creating a Board together, you’re likely waiting until Series A to add an investor. That traditionally means a three person Board (two founder seats and the Series A investor). When the startup then raises a Series B, you’d see the Board expand to five with the inclusion of the Series B fund and a common seat that will likely be awarded to an independent.

So, I think this is suboptimal and handicaps the founders. We’ve already written about why a good Board can be of help to even a seed stage venture, but now a few years into Homebrew, there’s an interesting side effect — you get to a five person Board faster, which eases the addition of an outside Director. See, take the math from the paragraph above and just advance it a stage – three person Board at seed and five at Series A.

For example, BuildingConnected, which completed its Series A, has a Board consisting of the two founders, me (seed), Crosslink (Series A), and an extremely impressive industry executive as the independent. He’s added a lot to the strategy, puts in time & sweat outside of Board meetings and is an excellent truth-teller to rest of us.

I’m not the only VC who believes — Foundry’s Brad Feld wrote about the value of an excellent outside Director. Sometimes I have founders ask me for advice about Boards and early stage companies which veers into the “I don’t want to lose control of my company” fear. My general belief is that a good Board is 10x better than no Board and a bad Board is 10x worse than no Board, so it all comes down to your investors and whether you’re creating a Board composition that will be there to help you. At the earliest stages there’s very little way to “lose control” of your company when it comes to the actual ownership and Board, unless you’re taking non-standard terms and working with investors who aren’t traditional, ongoing tech VCs. Don’t do that.

Another proof point here – if I was evil, I’d want a small Board where investors have outsized influence. Instead we’re suggesting you add an outsider that founders and investors think can add value but isn’t beholden to anyone. OMG!!!! 🙂

Anyway, if you’re a Series A or B company and you don’t yet have an outside Director as part of your Board, I believe you’re losing out on an opportunity to get input, guidance and credibility from an addition that goes beyond just bringing someone on as an advisor.