What Does the Perfect Board Look Like?
We don’t serve on the Boards for any of our companies for several great and good reasons. But we do insist that our invested companies have them and that they improve them over time. Here are some of the parameters we recommend.
- Size/Composition – We look for five member Boards – two founders, two investors, and one independent Director. If neither of the founders are women, try to recruit them in one or more of the other roles. Companies with diversified thinking on their Boards do better. (If you don’t believe this, please let us know upfront so we can quickly decide not to invest!)
- Compensation – You get what you pay for and you won’t get great BOD members unless there’s something in it for them. We like to see the Board share 1.0-1.5% of the company, with the Board Chair to receive an extra 0.25%.
- Term of Service – Boards should rotate new members in and old members out on a three-year cycle, with three-year terms. The needs of the company will change over time, as will the skills of the BOD members needed. Plus, you will have much better luck getting great BOD members if they don’t see it as a lifetime sentence.
- Early Exits – If a BOD member decides not to invest in a financing authorized by the Board, he or she should step out and step off. It doesn’t have to be a huge check, as long as it is significant for the individual. What you don’t want are “professional watchers.”