Opinion

September 29, 2020

Why you probably need to shake up your startup’s board

Too few startups have independent board members — and that’s a big problem.


Aline Eibl

5 min read

Aline Eibl, startup board member

When I entered the startup world as an investor, I thought startups were innovative, progressive and open-minded. However, when I entered the boardroom, that impression melted. 

I saw boards composed of founders, management and all-male investors. The topics on the table were only about money: figures, KPIs and growth. Where I expected a guiding light for diversity, ESG, values, purpose — you name it — there was money-talk. Even the corporate world left that behind years ago. 

This seems to be the case with startups everywhere. Regardless of size, startups almost always have a board made up of founders and investors. When they go into new financing rounds, new investors usually require a seat on the board, which often results in investor-only boards.

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Investors are mostly capable and experienced people, but rarely do they meet the main criteria for a board member: relevant, diverse and independent.  

The best board members are strategically engaged but operationally and financially distant without a conflict of interests.

Independence: Zero

From Silicon Valley to Europe, independent board members remain an exception. An Australian survey showed that only a quarter of startups have independent directors. By definition, board members should have the company’s best interests at heart. But all too often, investors are thinking about their return on investment. 

Independent advice is critical — to deepen perspectives and find new ones, for conflict resolution and building bridges, mentoring and, most importantly, bringing in a set of diverse viewpoints.

Boards that bring in the right balance of expertise fill in gaps of knowledge and experience, offer access to global networks and can help founders build higher-performing startups. 

Diversity: Get rid of your blind spots

Bringing diverse and independent opinions around a table has proven to be an effective remedy against biased and overly speedy decision making in the boardroom. Diversity is not only about gender, but goes far beyond, addressing age, ethnicity, background, experience, industry, sexual orientation and focus topics. On the majority of startup boards, diversity fails at the first point (despite this having an impact on financial performance).

The “secret sauce” of a successful board process is reaching out for different opinions and exploring blind spots. Having a variety of voices around the table that reflect the company’s strategic goals, and a diverse range of customers and stakeholders is the only way to go. Ask them who could make a board member, and mix them with people with an international background and a different focus, like ESG. 

Diverse and independent board members have proven to enhance the outcome and add value by giving support in more than a financial way. Startups with professional boards have shown to be more resilient — and can be more attractive to VCs and private equity investors. Internally, professional boards add value by giving a vision and a purpose-value compass which helps attract and enthuse talent. 

Diverse and independent boards which also embody values, ethics and ESG help increase crisis resilience and buffer much of the insecurity inherent in startups.

Different phases necessitate different boards — but start early

The board sets the tone. I advise everyone to consider the board and to seek out diversified networks from the very beginning. Be fearless in making connections with the best people; joining your board could be as inspiring for them as for you.

Limit the seats for investors and over emphasise having independent directors.

In a typical board with five seats, there should only be one founder, one investor representative, and three independent directors. Later, if the board grows, a second investor seat for the lead VC is enough. Stay lean. 

As your startup raises successive rounds of funding, your board requirements will change; periodically re-evaluate, as each phase needs different board members. Institutionalise it, so it does not get personal. Take care that you always have a professional board in place as transparency and the proof of good governance attracts capital. 

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On a personality perspective, look out for people who are clear on their “nose-in, hands-out role” as a board member, engage with your startup’s industry, and provide empathy and professionalism. Make sure they reflect your startup’s stage of development — or even better, the next stage. Do not reach out to potential board members solely within your own ecosystem: you already have that knowledge. 

Last but not least, some of your board members (or at least the chair) must have experience with corporate governance, moderating the whole process to make the magic happen. But the mix makes it. 

I advise mixing experienced corporate board members from the industry you are targeting with independently-minded newcomers who may reflect a future skillset, and people who already sat on startup boards for industry insight. 

Don’t be hesitant to invest in the development of the board, and reserve some funding for payments to board members, to show you value their work. Giving away shares to board members is a regular practice, but in my opinion it again blurs the line. The emphasis should be on mutual benefit in the sense of knowledge transfer at early stages.

If it is too late? There are always options. For those who have an all-investors board well in place I advise you to discuss it openly. Adding an advisory board might be a solution. Or, as many family-owned businesses do, split the board into an owners (investors) board and an independent board, with one delegated investors’ representative.