ExpertCEO

I am the CEO and founder of a 60 person, venture backed software company in the process of restructuring my board. I have three VC investors all of whom have board seats. Formerly the company had two board seats, myself (as chairman and founder) and our former CEO, and we had 3 independent board members. I have 3 questions:

1. What do you think of having 2 company board seats ? It seems to me that 2 board members from the company could be awkward, and now that the former CEO has left, I'm not sure why we need the second seat.

3. How many outside / independent board members make sense? What are their roles and responsibilities vis a vis the VC's. The preferred shareholders seem to have all of the decision-making authority for big decisions such as raising new capital, selling the company, etc.

3. How frequently should we have board meetings? Some VC-backed companies meet every month. Others seem to meet less frequently.

Thanks for your help.

A lot depends on what's your company's growth phase, need for more capital, management strength (both operational and investor relations), etc.

For a company your size, I'd suggest 2 VCs, 2 insiders, 1 independent. Additional major influencers could be accommodated in an advisory board.

If VCs require 3, you could go to 3 VCs, 2 insiders, 2 independent, though more than 5 will start getting complicated (logistics, getting signatures on time, conflicting opinions/guidance, etc.)

Generally, It is good to have an odd number to break ties if necessary.

Outsider should represent knowledge, credibility and contacts in your industry. If there's a second outsider, he/she could cover independent process/governance etc. in addition to industry-specific knowledge.

If you end up with just one insider (though imo 2 is desirable from your point of view), be sure to balance the VC view with outsider(s) who can advocate for the industry/market.

Finally, how did you get the opportunity to reorg the board? To some extent, the composition will be determined by the manner in which the situation arose.

Quarterly board meetings might be too infrequent at this size company, so monthly.

Hard to tell your exact situation. Some depends on the market you are serving (is it regulatory-based, Web 2.0, indirect channel driven, etc.), the product you have and it's maturity, and other things.

Personally, I don't think you need a large board at this stage. One insider (you), one outside board member who brings expertise, perspective, or contacts you are missing, and your investors. Three investors would appear to dominate, so it might be good to get a second outsider, if there is some value add that could be defined. Ideally, you'd get down to 2 investors and reduce the "martini effect" - "one martini feels good, two feels better, and three guarantees a headache". But this can usually only be done (carefully) during a new round of financing.

As to frequency, a lot depends on how much the board trusts you, and what their role is. If you are at an early stage where most of the time is exchanging ideas and advice, there is benefit to higher frequency. If you are at the "monitoring" stage, then once a quarter after the quarter has ended is typical. A common compromise is to meet bi-monthly. But the board meeting should just be a formal complement to frequent communication between you personally and each board member.

You might find this site useful as well (don't know if it's kosher to ExpertCEO to post another link, but here goes):

founderresearch.blogspot.com/2005/09/bui...ship-monitoring.html

1. I agree that 1 operating board member makes sense.
2. I like having outside board members. 2 is a good number. Ideally you would have folks who have grown and exited similar type companies who can help you avoid potholes along the road. In your situation they may also serve as additional "voices of operations" to balance your VC board members.
3. What works for us is face-to-face on a quarterly basis with calls the other months. We sometimes cancel the calls if there is no burning issue.

First of all background, I am on two boards now and have worked with many boards during my career. I agree with another person, that having an odd number is good. I would also say that very critical to this decision is the type of board member that you want. I know the VC's will be on the board, but it is also very critical that you have an outside board member that has been an operator, CEO type that can bring far beyond the financial perspective to the board. This outside board member CEO type will bring much perspective on strategy, operations, etc that the VCs don't necessarily bring.

By the way, I generally don't see a need to have more than one company executive having a board seat as it can sometimes be very awkward to open conversations at the board level.

Who is calling for a board reorg? Usually that is set at the time of financing. Two VCs are easier to deal with than three, but presuming you don't have that choice, then the ceo, 3 vcs, and an outsider can be a good structure now. Often if there is an obvious "lead" VC, you can work closely with them and the outsider and have the lead VC help coordinate the other two VCs on some issues when there isn't consensus. Easy for two VCs to be on the same page, much harder for three.

If you are far enough along to have 60 people and 3 VCs, at that stage i prefer quarterly board meetings a couple weeks after the end of the quarter to talk results, and then a mid quarter update which focuses on a particular strategic or functional area update/issue. Some like monthly board meetings but i find those boards often get too involved in making sausage vs evaluating the sausage maker and his work.