- March 20, 2016
- Posted by: admin
- Category: Startup
You’ve raised your first round of investment, the bank balance is above zero and the legal process is complete – so what next? Kick back and relax? In short, no! The hard work really starts now. One of the main noticeable changes, bar the dramatic increase in your bank balance, is the creation of your Startup Board. Those meetings you had with your co-founder in the nearest trendy cafe with free wi-fi where everybody knows your name are now taking place in a formal setting, have a pre-approved agenda, other people in suits turn up, an elected chairperson is conducting the meeting and someone else is writing it all down. Welcome to your first board meeting!
It is so easy to get preoccupied with the here and now, and accept that you will deal with the next stage as and when it happens. Raising investment isn’t necessarily a speedy process, especially when going through this for the first time. The time between starting your business plan, actually signing a shareholders agreement and getting money in the bank can be arduous and certainly isn’t for the faint hearted. It is therefore easy to understand that there isn’t much time or energy left over to even begin considering what will happen once investment is complete.
What does the startup Board look like?
It is likely your new board members will be made up of a combination of the following:
(i) a representative of an institutional investor or VC;
(ii) business angels or one elected member of a business angel group;
(iii) Non-Executive Directors (NEDs) that are neither shareholders nor investors and are independent individuals/specialists, or appointed observers with no voting rights.
One of these will be appointed chairperson. Your board is your new group of friends for the next few years … or longer. We find that this prospect terrifies some start-ups. But it needn’t be that way. A good understanding of what a board is there to do can help in overcoming some of these fears. When you agree to accept somebody elses money, you need to understand they want to make sure you don’t spend it frivolously – you are going to spend it as outlined in your business plan to ensure you avail of the opportunity you have identified in order to successfully exit in the next 3/5 years.
Monitor Progress & Accountability
The board are there to monitor this progress, measure actual vs target. Are these on track? Are we ahead of schedule? Are we way behind? If you fall into the first two categories, you won’t have much to worry about. If you fall into the latter, this is where the board will want to know the reasons why. However, not so they can blame you necessarily, but primarily to assess what has gone wrong – is there an issue with the tech/product? Is development lagging behind? Is the marketing all wrong? Price point too high/low? Market opportunity depleting?
It is not inevitable you will be a position where things aren’t on track – but, its probably close to inevitable! Probability would indicate that it is highly likely, at some point, the wonderful profit margin you outlined in your business plan and customer numbers will not grow at the rate you have shown it will. This does not mean failure, it just means welcome to the real world where the graph showing exponential growth on page 11 of your plan is actually more of a squiggle in real life. True to form, it will be much more terrifying than anything you have experienced before – hence the reason for keeping an eye on the detailed metrics with the support of the experienced Startup Board you have put together.
Support from the Startup Board
Anyway, I’ve digressed. The board … where do they come in? What can they do? Well for starters, they aren’t going to hold your hand and tell you everything will be alright, but whatever the problem, they will want to know what it is and ultimately help you and company address the issue. It is in as much their interest to make sure the company doesn’t fail as it is yours – it is important to remember they have skin in the game too! The startup journey can feel lonely, your friends don’t get why you aren’t running out of the office at 5pm and why you your new bff is your Chairman. The point is, the ones that do understand should be on your startup board. Individuals that have had similar experiences, they appreciate the sacrifices and how difficult they’ve been to make.
These people will all have different backgrounds, different areas of expertise and network with different groups of people. Get to know your startup board, get a feel for each members background and area of expertise – have they tech knowledge and mingle with high flyers in those circles, do they know investors that would be interested in the next investment round (you’ll have more than one round of investment), are they financial wizards and can help or advise you on implementing financial systems suited to your needs, do they have a list of potential customers through other working relationships – whatever it is, these people sitting round the table aren’t there to turn up once a month and stare at you, drink the free coffee and leave, they can help. It will be up to you to ensure that you develop a strong working relationship with your board to get the best from them. The opposite is also true – a good board will want to work with you, not against you. They will want you to be open and honest so they can provide you with the best advice possible.
Having set up our own business and successfully attained funding, we have first hand experience of what works well and what doesn’t work well on a startup board. If you could like help and assistance in this area please contact us on [email protected] or visit our business mentoring page.