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October 1, 2013

What the Best Say About Boards

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One of the dangers for startups is that we hang out with other startups.
There are complicated dynamics we don’t have experience with and it’s not
often that we have access to very successful executives that have been
there and done it a number of times.

One of those complicated items is a board of directors. I can recall
conversations with other startups about why they don’t have a board of
directors. They looked me in the eye with unbridled fright from the “vote”
– citing that adding a board member means you immediately reduce the
influence you have over your own company on important matters that require
a vote.

Understandably, giving up part of your influence is not an exciting
situation to be in for an entrepreneur or a founder.

Tim Eades was the CEO of Silver Tail systems, the leading provider of
predictive analytics for both detection and prevention of cyber attacks for
the World’s most prominent websites. Tim was employee six and led Silver
Tail through a $20M Series B investment from Andreesen Horowitz and in
October of 2012, Silver Tail was acquired under his leadership by
RSA/EMC http://allthingsd.com/20121030/emc-to-acquire-silver-tail-systems/.
Tim regular serves on boards – including three now. He’s been responsible
to boards throughout his entire entrepreneurial career and as an
accomplished executive. As an active angel investor, he steers clear of
startups that do not have a solid board of directors in place. I
interviewed Tim about his experience with boards and to ask him why at such
an early stage of a company should a board be a focal point.

Why is this such an important item for you when evaluating a company for
an investment?

  • Boards push you to be better than you would yourself. Olympic
    athletes are the best in the World. They still have coaches to help them
    get even better.
  • A board in place shows maturity, fiscal responsibility and
    discipline. It shows that a CEO has the ambition to be challenged and to
    get better.
  • As a CEO, it’s often difficult to see the woods for the trees and a
    board helps with that significantly. They add context across hiring, fund
    raising and markets.
  • A good board gives me, as an investor, confidence that you have
    controls in place to spend an investment wisely.
  • You’re legally obligated to have governance and controls in place for
    your company.
  • In some ways, a board provides a level of protection to the CEO
    personally. In the event of the company when it’s performing poorly
    investors want to know that appropriate avenues were explored/discussed
    with relevant attention and detail. The board provides the appropriate
    checks and balances during good times and bad.
  • Regular updates for the board are a very good habit to get into.
    They’re going to change at every stage of the company….when you reach 25
    people and when you get to 250 people but the habit of updating should
    change. It’s good to have that habit early. Silver Tail provided weekly
    updates.

I can recall conversations with other startups that have been warned
against giving up a vote at an early stage?

“This is not about giving up a vote. This is about giving the company
every chance it can to be successful and I think a key part to that is a
good board. **It’s hard as an entrepreneur to make all the decisions,
having a good board helps you become a better leader, deal with
organizational dynamics etc.”

What do you usually talk about at your meetings?

We talk about dynamics and trends in the market, product, company
performance and mapping to long term goals. We also cover where we can
help or remove obstacles and what introductions we can make to investors or
customers. 

Shouldn’t I be worried about my vote being worth as much as it can be? If
I add a board now then raise Series A financing, I might be looking at 1
vote out of 5 and have limited influence over my own company?

Think of it this way. If you don’t have a board, how are your investor
views represented, how are they going to be kept informed of the progress?
How formerly and regularly are they going to get updates? Who measures
and manages the company to the performance that was agreed to?

Usually you vote on equity for key members of the team and this is usually
a formulaic equation other than than alignment through good communication
with your board negates any issues around board votes. Other than that
alignment through good communication with your board negates any issues
around board votes..

What if I hate a board member and he’s no good?

A board member can be replaced just like anyone else!”

What’s the best part of a board in your experience?

“With the right people, boards are fun. When you have a tough day and do
something bad like blow up everyone’s computer or crash a load of servers
or something, you can ring them anytime and they’ll be there for help or
encouragement to remind you that the World isn’t ending. Boards encourage
good conversations about the market, the product and financials. They make
you a better CEO.”

What would be one take away you’d want people to remember about a board?

“Boards have made me a substantially better executive”

If I’m convinced that I want a board now, what’s a good set of criteria
for evaluating whom I should ask, how many I should ask and compensation
discussions I should have with them?

“1. Take your time – the right board is made up of different players on
the field to create the team-dynamics and skill sets are key.

2. Meet lots of folks to get input
3. Make sure they complement you.
4. Understand the time commitment on both sides.”

TIM CAN BE FOLLOWED ON TWITTER @EADES50

One Comment on “What the Best Say About Boards

Terrance
June 12, 2015 at 2:26 am

This was very helpful as I am in the process of a start-up. Thank you for taking the to provide this information.

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