At Techstars, we spend a lot time surrounding companies with amazing, experienced mentors. We believe that it is the power of the network, the collective wisdom, the experience, the diversity of opinions that causes the companies to accelerate.
After the program is over, many of our companies go on to raise successful Seed rounds. Sometimes these rounds are led by venture capitalists, but often they are not. A lot of Seed rounds end up being Angel rounds.
When the rounds are led by VCs, they typically ask for the board seat. This is so called control term in the financing, and it is market and standard. Although its called a control term, it really is not about that at the seed stage, because the founders typically retain majority stake and have full control of the company, and the board. The reason VCs join the boards is because they want to help grow the company, and to make sure it is on track for the follow on financing.
But when the company ends up doing an Angel round, no formal board is formed. Founders collect the checks, close the round, and continue to build the company.
The problem and the challenge with not having the board after the Seed round is that there is no outside, non-executive perspective on the company. There is no higher level accountability for CEO, there is no regular milestones, and no regular check-ups. And it might be totally fine for some companies, but in a very real way that puts a company at a disadvantage.
What boards do really well is focus on growth and milestones that are needed to get to the next level – most frequently the next financing. Good boards are metrics and growth oriented. They bring diversity and an outside perspective, they bring experience, and collective wisdom. In a lot of ways, like a group of Techstars mentors, great boards help keep the business healthy and help accelerate it.
If you are entrepreneur who closed a Seed round and don’t have a formal board, consider creating a Board of Advisors. This will help you keep yourself in check, get an outside perspective, and maximize the chance of the follow on financing.
Here are some ideas for how to set it up:
1. Commit to doing it every 4 to 6 weeks.
2. Include 2-4 people plus the Founders.
3. Recruit one or two of your top angels + other experienced operators/mentors
4. Offer non-investor advisors 0.25%+ in equity to make it formal/meaningful.
5. Make advisors commit to showing up / dialing-in every time.
6. Make it serious and official.
7. Set goals/milestones for each upcoming meeting.
8. Take feedback and treat this like a real board.
9. Don’t be afraid to swap folks out if turn out to not be a fit.
10. Make it clear that things may change a lot post next round of funding.
Assembling the board of advisors and getting used to periodic reporting and focusing on metrics and growth will help your startup get to the next phase. It will also prepare you for the actual board experience that you will need once you raise series A from VCs.