Most Startups Add Independent Board Members Too Late To Make A Real Difference. Here’s Why.

Think Of Your First Non-Investor Board Member As a Senior Hire, And Not Your IPO Board

Being a CEO and running a startup is hard! So you’d think that founders would take advantage of every resource available to help them out. And for the most part they do. But one gap I see too often is leaving the Independent Board member seat unfilled for long periods of time. Often because it’s scoped as requiring a Director who will be with the company until its exit. When instead it should be thought of initially as “who is a senior outside voice who for the next three years or so can help advise this company’s leadership team.”

Before I make my case for a reframing of the Independent Director, I’ll back up and explain. Every company has a Board of Directors, whether it takes financing or not. Initially it’s often just the founders or executives of the company, but as they take outside financing, some classes of investors negotiate Board seats, meant to ensure there’s input into the company’s pivotal decisions which represent interests of all shareholders. So with a typical venture financing, a three person Board will be established (two ‘common’ seats — often the founders and one investor seat). Then as more capital is raised, the next expansion is often to a five person Board — the two founders, two investors and an open seat. This open seat is usually designated as ‘Independent’ meaning it’s not an officer or employee of the company nor a major investor. Rather it’s someone with perspective, gravitas, expertise, a personal brand, whatever, who adds value to the discussion and can be a steward of the company.

This Independent seat usually sits vacant for quite a while, there are other priorities at a startup! But it exists to ensure the Board is an odd number of votes, and while unfilled, it’s usually assumed that the founder/CEO will be its proxy. As a result, sometimes filling it can be seen as ‘giving up control’ since the vote will shift to an actual human being, who theoretically is weighing in on what’s best for the company, not necessarily the CEO (with the hope being those are aligned of course).

I’ve already written about the value of adding an Independent seat post Series A but my conviction has grown in recent years seeing what I’d call ‘Interim’ Independent Directors in action at multiple of our Series A stage startups. Individuals who are *perfect* for that stage of the business and bring real world perspectives to the conversation. They’re typically senior executives at other larger technology companies, not yet serving on public company Boards but also grown beyond the here’s a few common shares ‘advisor’ slot. It’s of great mutual benefit and the startups are more successful as a result because these folks aren’t just active at Board meetings but do 1:1s with the CEO, help with hiring, provide another non-investor perspective to the company exec team and so on.

Outside of the ‘control’ concern noted earlier (overblown in most cases), the two reasons these seats go unfilled are perceived search costs in finding someone (and actual costs in adding they — they get equity) and too upscoped a notion of who should fill the seat. Discussing the latter solves the former IMO.

At Series A/B you are very unlikely to get the CEO of a public company to take an Independent Board Seat. Yeah if you’re a travel startup the idea that the Marriott CEO should be your Board member sounds great but it’s not a fit early on, for them or you. Instead you’d benefit from, say, the VP Operations at a large hospitality brand, or the COO of a non-competitive larger teach company. These people are all available, identifiable and reachable. The only conversation which has to occur is “let’s think of this initial Board tenure as a 2–3 year role, after which we’ll mutually assess whether it’s best fit.” There! In one easy agreement you’ve removed all the weird stigma about transitioning a Board member and set a lower bar for who should be part of the company. It’s like hiring — you wouldn’t not fill a product lead role just because the Chief Product Office you might need five years from now isn’t currently a fit. No, you’d add the right talent to fit the role at the moment. Think of the Independent Board member the same way!

So go forth and find that person! It’s a chance to add knowledge to your Board, and sometimes even diversity as well (since we know what the venture investors are statistically likely to be…)