Picking Boards of Directors
The scarcest pool of people for startups is men and women experienced with how a great board of directors works to promote success in a new enterprise. I first heard about that shortage as a young man listening to old guys tell the stories of how they succeeded. It was back in the 1980s in Silicon Valley when Dick Kramlich, the VC icon of New Enterprise Associates shared with me one of his biggest frustrations with startups: “We just don’t know how to manufacture the good board people fast enough!” Few first-time founders have served on a board of directors of any kind. They get thrown into the breach on day one of founding a startup. Sink or swim, learn on the job, that’s how it is done.
And few first-time VCs have any board experience. After joining a venture firm as a partner, they begin as an observer or stand-in for VC partners that must be absent. You can spot the inexperienced people at board meetings because they seem to focus on spending a lot of time in long discussions of small matters. And in moments of crisis they quickly begin to micro-manage the CEO. It is natural for them because they got to be a VC by being a great vice president in a great – often venture financed – company. They will learn from the veterans on the board. As the monthly meetings go on for years, the green VCs will learn to be better, perhaps even outstanding board members. But it is not advised to compose your board with first-time VCs. Life is too short. Pick VC partners with a lot of board experience and your life will be much more productive.
Experienced VCs on a board of directors of a new enterprise are worth their weight in gold. But they are scarce. They come with a lot more than money. Treat them as you would if you were hiring a vice president: very carefully. You will have to live with them for at least a half decade. There are not many VCs experienced with the wisdom you need. VCs aim to limit their board memberships to a maximum of seven. That is about the limit of sanity and logistics. The veterans have learned each startup takes large blocks of time at unpredictable future moments. This limits the number of experienced VCs and also the pool of experienced board members who are available. There are only so many VC partners available at one time in the world. The number is not large. And aiming to get one of the great ones on your board from one of the finest venture firms in the world is a significant goal. It is worth aiming for, but will not be easy. Your competition for the attention of that person will be intense. Plan on picking your targets carefully. Do your homework: talk to CEOs of the companies the VCs are financing and sit on their boards of directors. That will tell you who the VCs are and how good they are. Then make your decision.
Tomorrow: Picking Advisors