Who You Want On Your Board

One of the guys who taught me the venture capital business used to say "success is in inverse proportion to the number of VCs you have on your board." He was right. For a few reasons. First of all, most VCs get on your board by virtue of financing rounds you do. If you do a lot of financing rounds, you will collect enough VCs on your board to field a basketball team. And that sucks. And it means you had to raise too much money too. All of which are bad things.

But there is another reason and it became perfectly clear to me on Tuesday when I had back to back board meetings.

The first meeting was almost a celebration. The company had put together a phenomenal year in 2012 and there wasn't much to be concerned about. But the best question asked of management in the entire meeting was asked by an independent director who happens to be a CEO of a company that is five times bigger than our portfolio company. In the midst of the "celebration" he brought everyone back to reality and got folks to think about what we could be doing better. It was a great board moment.

The second meeting was even more interesting. The CEO was seeking advice on some important strategic questions. And this board has two investors and three very experienced operating executives on it. And one of the investors (not me) has deep operating experience. So you had essentially four very experienced operating executives plus me giving the CEO advice. It was a great meeting. I walked out thinking "that is the way a board should be constructed."

If I could construct the perfect Board for the companies I am invested in, it would be the CEO, me, and three CEOs who have built and/or run one or more tech companies of scale. If you have a very experienced VC on your board, you really don't need more of them. But you can never have enough peers on your board who have been where you are before. That is invaluable.

#entrepreneurship#VC & Technology

Comments (Archived):

  1. John Best

    I think the set up you’ve described allows a much more mentor-type relationship between the CEO and board. Experience is always valuable.Tangentially related – what did you think of Reid Hoffman’s opinions on bringing in a “professional” CEO?

    1. fredwilson

      i didn’t undersand the points he was makingit was all too complicated for me to undersand

      1. JamesHRH

        ?Reid is pretty clear that he likes products & keynotes. He says that CEOs of a company with 50+ people do not do much of that. So he thinks founders should look at executives with that kind of management experience and stick to what they like to do.Most product people are not leaders of people. More than ever the web space requires product people at the beginning (traction, traction, traction).It seems a pretty linear progression: once the product takes off, the business will take off. Maybe a ‘proCEO’ should come in to scale the business.

    2. JLM

      .Investors have made a huge investment in a jockey in the context of jockey, horse, course.And the first thing they do is get the jockey off the horse. Consume his high energy time.The Board should be trying to do whatever it can to make the jockey’s time atop the horse productive rather than dragging the jockey to the barn and leaving the horse unattended in the paddock.The notion of the Board mentoring the jockey collectively is not reality but the idea that one influential member of the Board can have a special relationship with the CEO is the low hanging fruit.Again, the gray haired eminence..

      1. John Best

        I love your analogies. Is it worth the board selecting / electing a single individual for that special relationship?

        1. JLM

          .If the Board is that smart. Otherwise like many things in life, one doesn’t GET power, one TAKES power.See this post for more such insights.http://themusingsofthebigre….

          1. John Revay

            Great post….I have one of those people, he has graying red hair:)Very nice piece.

  2. pointsnfigures

    I always tell companies in the start up phase not to take dumb/dead money, and not to have board members that they cannot leverage for other things (mentorship, customers etc). When they get independent board members, they need to make sure they are independent-and they need to check their references.Conversely, in startup land you run into a lot of CEO’s that don’t know how to manage a board or prepare for a board meeting. Different issue but because at early stages well run boards can add a lot to the company, it’s an important issue.I also like your suggestion of numbers. 5 is the right size. no more. sometimes boards start to look like org charts.

    1. jason wright

      who said “money talks”? I’ve yet to have that conversation.

      1. pointsnfigures

        the first money in the business ought to be more than just a check. it ought to be strategic in some way. Non-participatory money isn’t great for the startup. Too many hurdles to climb. You want to be able to go to investors and mine their network for connections, mentorship etc.

  3. LIAD

    Maybe the same applies for Board seats as it does for Poker ones.’If you look round the table and can’t find the chump. It’s you’.

    1. JLM

      .Finding the chump…Well played!.

    2. CJ


  4. Dave Pinsen

    It’s reassuring to see CEOs as board members when you look into public companies.

    1. fredwilson

      yes indeed

  5. theo_redux

    http://bpmredux.wordpress.c…I think having independent Board members and Advisors on a part-time basis is a godsend for new and mid-term companies

  6. John Revay

    “If I could construct the perfect Board for the companies I am invested in, it would be the CEO, me, and three CEOs who have built and/or run one or more tech companies of scale”Great Summary….but how do you get there if say you need three rounds of capital.What are your thoughts about GPs that ran companies B/F joining a VC firm > I would probably put them in the CEO camp

    1. fredwilson

      yes, they are in the CEO camp

  7. EmilSt

    Fred Wilson.

    1. David Petersen


      1. JamesHRH


  8. RichardF

    I used to work for a VC backed biotech start up, there were 5 VC’s on the board and at least one observer. It was literally “murder” (said in a Scottish accent, most people won’t get that, sorry)

    1. John Best

      Taggart. 🙂

    2. fredwilson

      i’ve sat on a bunch of boards like that. i wanted to commit murder

    3. Rohan

      You mean, meerdheerrrrr

      1. RichardF

        I had no idea you were fluent in the Scottish language Rohan

  9. Drew Meyers

    What’s your take on having people on your board with industry experience specific to the vertical you are in?

    1. fredwilson

      i am a huge fan, particularly if they are a CEO

      1. Drew Meyers

        Cool, thank you.

  10. awaldstein

    I’ve always thought of my boards as partners not mentors.Boards that work are a gift. Boards that stall and are a reporting relationships are in the way and do way more harm then good.We’ve all had both.

  11. Jordan Thaeler

    Not that I’m an expert on VC operations, but if it’s anything else like finance (i.e. PE) the analysts and associates do all the work and the Partner just shows up to the board meeting with his underling’s notes. He has no idea what’s really going on with the company and only cares that the ROI keeps going up. Just my experience.

    1. fredwilson

      That’s why we are a partner driven firm where the partners do most of the work. My biggest problem is I like to do all the work and don’t delegate well

      1. ShanaC

        also keeps you shapr

      2. JLM

        .The original Lazard partnership model which was a superior moneymaker when Wall Street was filled with really smart, hardworking, mature killers.It is the difference between hand made and mass produced.It only fits certain people and your partnership is one of them..

        1. JamesHRH

          The problem is that Financing at scale works with ridiculously until it fails completely.And most players play with OPM.

          1. JLM

            .The original Lazard partnership used to risk their own capital in deals on a wholesale basis.One of the great attractions of the VC business is that it IS OPM and the OP will pay 2%-20% to mind their filthy lucre.There is really no shortage of money in the world, it is the mobility that is the issue.Read “The Last Tycoons” — http://www.amazon.com/Last-….

      3. falicon

        I suffer from this problem as well.

    2. ShanaC

      why are they run that way – doesn’t this sort of system open you up to big mistakes?

  12. kenberger

    but what can really be done about it? If you’re a top, rare company, then sure, you can sometimes aggressively fend off board dilution and maintain control. Maintain an F.U. policy. Doesn’t happen too often. Jeffrey Citron at Vonage is a good example.An answer is: just don’t need more money and you won’t cede control. But many successful growing companies do choose that path to achieve loftier goals. With the money, many investors think “my butt’s on the line, I better get a seat” even if this could be ironically contrary to the success they’re hoping to protect. And there you are with an ever-increasing, investor-heavy board.

    1. fredwilson

      I wish I had a good answer Ken. I got off of Twitter and encouraged my friend Bijan to do the same because there were too many VCs and not enough peers around the table. They have a great board now

      1. PhilipSugar

        And look how much smack was written about that….that is why I agree with you that the answer is tough.Btw: “perfect Board for the companies I am invested in, it would be the CEO, me”That made me smile because that is every VC perspective. There shouldn’t be too many VC’s , that means me not you.Your actions speak louder than words and that is why I put that comment here. 🙂

        1. JamesHRH

          Leaving Twit BoD a total proVC move, I agree (from my humble cheap seats).

    2. FlavioGomes

      Golden rule…those with the gold make the rules.

  13. William Mougayar

    I just cringed when I read this post as I recently saw a situation where the only Board members were 4 VC’s. I didn’t envy that CEO’s position.There comes a point where the VC’s contribution to the Board reaches the diminishing returns stage, and that happens very quickly actually despite the romantic illusion that being on Boards is part of what VCs do, so they can “watch” over their investments.Three factors:1) VCs are more helpful in the very early stages, 1-20 employees, less useful after. They become free riders.2) Most VC’s don’t have operational experience or if they do, it’s either stale or they blow it up to more than what it really was.3) VC’s interests can start to diverge from the company’s interests e.g. when there are tough decisions to be made, such as m&a. They can start to fight over the cap table instead of what’s good for the company.

    1. awaldstein

      Rephrase:-Choosing your investors well.-Keep control.

      1. pointsnfigures

        crowdfunding might have an advantage. then you don’t have deal with them!

        1. awaldstein

          Bootstrap then find a transaction early also but only plays to some solutions.If you are doing ‘go big or go home’ VC are the route.

      2. Ellie Kesselman

        I don’t think it can be reduced to two lines. @wmoug:disqus made three points, all sources of risk to a start-up company as a going concern. I could write case-studies about 1 and 3, there are so many examples. There is plenty of 2, too, but that is more slippery!

    2. Abdallah Al-Hakim

      even the more reason to have VCs with operational experience in your board. @fredwilson:disqus post made it clear that the operational experienced VC were extremely valuable. That should be another factor for entrepreneurs when looking for VC money

  14. PJSweeney

    One key board member I’d trade for a CEO any day is an experienced public company CFO. Especially if you have designs on going public.I’m on my fourth company, two successful exits yet this by far the most promising – I have the former CEO of Disney digital who is a great operating exec, the President of a Public B.I. company, the former CEO of Kelley Blue Book and the former CFO of Capital one who brings an entirely different set of expertise from the other guys. Since CEOs tend to think roughly along the same lines having the CFO in there (often Mr. Grumbles of the bunch) gives an entriely different orientation on things. They clearly help young companies prepare to and behave like big companies.

    1. JLM

      .The power of the public company CFO is exactly as you have noted. This guy already knows and understands the 1933/34 Acts, Sarbanes the Ox, Reg FD and all the SEC reporting requirements.The strictures of being a public company are way, way, way overrated. While initially daunting, they are really just a bunch of monkey see – monkey do standardized operating disciplines.Get a damn good SEC outside counsel who has worked with small companies. Small companies. I know one who is so good his face should be up on Mt Rushmore. I know I have paid him enough to finance the carving.If you can find a CFO who does not have a field marshal’s baton wedged into his knapsack, all the better. Rare find indeed.No young company can ever afford the top financial person they really need. This is a position in which over investing is critical.A great over qualified CFO allows a CEO to learn to dance.So, Hell yes, get that same CFO on your Board..

    2. Matt A. Myers

      Early on I could see this being a big asset, otherwise that CFO on your board is actually in your company..

      1. JLM

        .The real world problem is that you NEVER can afford the CFO you need because the CFO you need is the one for where the enterprise is going to be in 5 years and you need that CFO to get you there..

        1. Matt A. Myers

          Agreed, best you can do is find an up and coming CFO who will be as good or better than current top CFOs – and help foster their development, learning, etc..

  15. JLM

    .The composition of boards is something that Fred could write about for a year, maybe five.Having been involved with boards for over a quarter of a century, I can assure you that there are times when it really does just fall into the “slot” — that perfectly balanced position when the sails, the point of sail, the trim are all in perfect balance and the boat sails itself in perfect balance. The rigging sings to you and you are almost lulled to sleep.But that is not the norm and the real steady state is one of conflict — as it should be when driving any enterprise. If there is no conflict, then there is no contact.Rubbing is racing. Growth is conflict.What every board needs is a grey haired eminence. My New Years wish for everyone was exactly that.http://themusingsofthebigre…I have recently pivoted a bit in my own time investments and have been solicited to join several boards. I must say I am appalled at the type of problems I am seeing out there. I have begun to catalog my thoughts into a series of what I would call SOPs. Love letters to myself.Funny thing — every VC I have ever spoken to has told me a horror story of the “bad VC boardmember” but not one of them has ever been them. Just teasing..

    1. PhilipSugar

      The last line is really well played.

    2. William Mougayar

      Re: your last line, very few are good at looking at themselves in the mirror. The ego usually stands in the way.

      1. JamesHRH

        Most AAA personality types only reflect on work / life balance or other things that affect their outcomes.No reason that VC AAA types should be any different.

    3. Rohan

      Haha, i’m sure Fred will admit that was him 15 years ago.

      1. JamesHRH

        Mousse is something Fred eats, when dining with the Gal.There is NO WAY he has ever put product in his hair.

    4. ShanaC

      what kind of problems are the most common?

      1. JLM

        .Mostly basic organization problems revolving around a lack of serious documentation —no Board charter,no committee charters,no meeting SOPs,lots of guys w mousse in their hair and surgically implanted smartphones/tablets,nobody reading the materials,can’t get the board materials out on time,no technology on board materials — put them on Google docs damn it,no updated business plans,no updated strategic plans,no communication outside the Board meetings,busy, busy, busy young guys who are so, so, so busy they can never stay for a whole meeting,no relationship with the CEO,no mentoring,no soft timeNO BRAINSTORMING..I could go until lunch time.

        1. ShanaC

          it is nearly lunchtime here (if you are pro early lunches)

          1. JLM

            .It is not close to lunch time here in the ATX but it will be shortly.BBQOn Earth as it is in Texas..

        2. Ellie Kesselman

          Are you serious, no Board charter? I just responded to someone’s inquiry, contrasting corp’s (w/ By-Laws that strictly define number of Board members) versus non-corp. start-up’s which should have but might not follow such documents closely. But no charters (Board, committee) at all? Wow! Not reading materials, or worset, not receiving them in time to read! Eek.I have twice been chair of committees (one Data Governance, other Data Quality). Committee members would hang me out to dry if I weren’t to get them the minutes from the prior meeting, plus an agenda with handout’s for the next one, with sufficiently advance notice. Why? So they could be prepared, as I would want some to address a current or anticipated problem, and be able to present at the meeting.My boss was told to leave the room if she wanted to text or talk on her cell phone during board or committee meetings, especially if IT staff were present. They had zero patience with that. It must be difficult for you, not to get exasperated!

          1. JLM

            .Sounds like your experiences have been gleaned at a bit bigger companies.Startup companies can still count the rounds of cell mitosis on their fingers..

          2. Ellie Kesselman

            It is ironic, as one was the state Dept. of Health Services, Office for Children w/Special Health Care Needs (we administered part state-funded, part Medicare-funded managed care). That is the polar opposite of a start-up! But attendees included the CFO, MD’s, lead programmer or Data Security, Asst District Attorney. and their time was valuable.I would think that VC’s would consider their own time to be more valuable. In a quantifiable way, it is! That’s why I’m surprised they wouldn’t be highly efficient, and demand that in others.

        3. JamesHRH

          That is a hilariously damning, off the cuff list of VC led BoD evils.

          1. JLM

            .I think the two real danger zones are in the cradle and at year 10.Companies at year 10 cannot find their original Bylaws. I once had to tell a guy how to obtain them from the Sec of State. They literally could not find a copy..

    5. JamesHRH

      Love the freshening of your jargon.

    6. Elie Seidman

      Have seen same with VCs – everyone says the other guys are low value add and are just “dumb money”. Have never found the person who says he is low value add. Maybe one day I will. Would be refreshing. My observations is that the VC bell curve is like most bell curves. I’d say 10 to 15 percent will help you a lot. (the Fred’s of the world). 60% will be neutral and won’t get in the way. 10 to 20 percent will, when given the chance, and the chance will always come, do a LOT of damage. Seek the top set. Avoid the bottom group like the plague. Unfortunately, they don’t advertise themselves. But with careful and discreet reference checking, their reputations precede them. You just have to know where to look.The other side of the grey hair coin (and that’s a coin I greatly value) is the really young really smart – wise before his time – up and coming senior associate or principal. They are rare but they very much exist and I’ve had the good fortune to meet one or two this past year. We were all young once.

      1. fredwilson

        such a great comment Elie

  16. markslater

    and keep it simple early in the company life…..We are fortunate enough to have a great VC. The two principals of the east coast fund basically “share” the board role at this stage – so far its been great, they both have extensive operating experience but are fundamentally different in terms of strengths.I think we will KISS until we have a very compelling reason to make a move.

  17. PhilipSugar

    The biggest issue is one of perspective. You aren’t going to get very much diversity of perspective with VC’s. By definition the VC has the perspective of a preferred shareholder that wants within a relatively short time a profitable exit or liquidity event. Nothing wrong with that, this is where fiduciary responsibly to investors does truly come into play.You are going to have very different perspectives when you have people that are looking through different lenses. Somebody might look at things from a sales perspective, somebody might bring an operational organization view. I could go on and on, but you wouldn’t want to only have finance people at your company, the same goes for the board.

    1. LE

      “Somebody might look at things from a sales perspective, somebody might bring an operational organization view.”I can see how this is a tough nut to crack. The reason being I could argue either side of this issue.To agree I would say on it’s face sure having someone with a sales or other perspective is great to have. What’s there not to like? But what about the bias and “jade” that goes with that as well from a singular point of view?How well are others able to understand the issues and not be swayed by the perspective of what one or even several persons think based on their personal experience or what they’ve read? [1][2]With respect to the “jade” issue, this is one of those things where experience gets in your way. Young people (or people inexperienced in a particular area that are older) don’t know what can’t be done. [3] And so many times I’ve seen that work to their advantage in doing things (the naivety that people with experience laugh at). And some times they make mistakes [4] So I worry about that dynamic as well.People also tend to throw others into broad categories if they know nothing about the issue “he’s a computer guy” (so he knows a-z) “he’s a lawyer so..”. But in business the devil is always in the details. It’s simply not that easy. If it was their would be a recipe. (Buy a franchise.) A true entrepreneur I feel has to be B to A- in everything innately.That said, since the issue here is “who should be on your board” I’m not arguing that you should have VC’s instead of people with operational experience. I’m just making the obvious point that you have to be careful of who you listen to regardless of their area of expertise. That’s why you get second and fourth opinions and weigh carefully the pros and cons of any significant issue. There are no shortcuts.[1] Was watching a PBS Frontline on Obama (great watch btw) the other night about how Obama even with his “best and brightest” cabinet of experts completely underestimated the republicans pushback/stall in his initial days in office. Republicans ran the clock out on a particular issue. If it can happen with that level of expertise it can happen anywhere.[2] As the saying goes “ask 10 doctors get 10 opinions”.[3] I opened up my first company in an area that a more experienced, older, and successful person very clearly told me was the wrong place. “no tall buildings”. He also didn’t hire me (which is why I went the route I did) because “you have no experience in this industry”.[4] I’ve passed on opportunities that I shouldn’t have based upon having a little information makes you dangerous. One opportunity I passed on when young was to team up with a guy who wanted to “teach me the ropes”. But he had “DIP” on his checks, and that meant he had been bankrupt, and that was in a time when that was a big negative in business. So I didn’t get involved with him based on that and in retrospect it was a mistake.

      1. ShanaC

        why was 4 a mistake?

        1. Matt A. Myers

          The name of the guy who wanted to show him the ropes was Warren Buffett; Just kidding, I don’t know.

          1. LE

            Had it been anyone that notable or well known you can be sure I would be using that (person’s name) to my advantage any way I could.First day I went out cold calling the only person who was really mean to me was Jim Cramer’s father who owned a wholesale company on the same street. He was a real asshole. At the time of course Cramer wasn’t Cramer but it stuck in my head all these years.

          2. Matt A. Myers

            Unfortunately some people succeed in business by being a bully.

          3. Modernist

            the apple doesn’t fall far

        2. LE

          He wanted to use what I knew to branch out his company into another area and suggested we team up. He ended up doing quite well doing that and rescued his company as a result. This is all in hindsight of course and he seemed “slippery” so that in combination with some other observations about him is what kept me away. As with any story, I could tell this from different angles depending on the point I want to make (the point is the point, not the truth, right?) [2] By saying “in retrospect it was a mistake” I was simply trying to appear circumspect about what had happened.Sometimes mistakes also lead you in different directions though and those directions end up being pretty good. [1][1] Take the proverbial break up. People are always upset when someone breaks up with them, dumps them etc even if in the end they know the relationship is wrong and should actually thank the person for getting out before a marriage, child or other commitment.[2] As you go through life and have more experiences you will end up realizing that there are all sorts of gray areas in how situations unfold. When stories are told (when you read things) you never know that you are getting the full story of why someone did anything or why something happened. Only the POV of what someone is trying to achieve or can actually remember in telling that story. Details matter (as my story just told when you questioned it) and you never know all the details and even the actual person involved doesn’t remember all the details. I actually just remembered the “slippery” because you questioned what I said. I had forgotten that fact (that’s like auto forgive mode it’s a feature to forget sometimes not a bug).

    2. Matt A. Myers

      I would want to be presented with all of the best possible options so then I can pick and state a strategy and why it makes sense to follow. Not having good, sound options, would be worst case scenario. CEOs/others with experience will of had time to filter experiences and give you curated direction.

  18. Jorge M. Torres

    An issue that can destabilize a board, especially as a company completes successive rounds of financing, is the preference stack. It’s not an issue when the company works out, but in a downside scenario, or even if the company is simply going through a rough patch, it can get pretty ugly, i.e., a bunch of VCs with misaligned interests trying to get their money out. I think this is another reason to worry about concentrating too many VCs on your board, especially as it grows from startup to full-fledged operating company.

  19. JamesHRH

    Always cool how BoD posts bring out the best players in the AVC Association.

  20. Iggy Fnlo

    I agree with the sentiment of this post. CEOs can get this simulated through YPO

    1. JLM

      .YPO, TAB, Vistage — great organizations for CEOs.We had at least two future billionaires (Michael Dell) in the Austin-San Antonio chapter.The Forum – YPO experience was priceless to me..

      1. JamesHRH

        That’s quite the stat – 2 out of 16 guys become Billionaires?

        1. JLM

          .About 200 members in the Austin-San Antonio YPO Chapter.

          1. JamesHRH

            Sorry, made the leap that the Billionaires came from your Forum group.

  21. ErikSchwartz

    I have been in the “many VCs and me” board meetings. The BOD was 2 VCs and 2 founders and there was a seat for an independent (the VCs always had some associates along too, plus other VC observers). What was worse is every time I tried to get the independent board seat filled by an industry professional the VCs torpedoed the proposal by saying since I brought the guy to the table he really wasn’t independent.We never did fill that open BOD seat.

    1. PhilipSugar

      That’s the other issue, the other elephant in the room which is a power or control issue. VC’s will feel the other VC’s will side with their interests, and what that really means is replacing management if things aren’t going well. Founders/management will side with each other. So the worry is you could have things not going well and not be able to change the jockey, because the independent might look at the situation and not think its a management issue but a market issue and they most definitely have had those struggles if they’ve been a CEO.When I say things aren’t going well, that’s rarely black and white, but that most definitely is shaded by your perspective. If you are coming to the end of the fund cycle and the company is not achieving a ton of traction you need to start to throwing hail mary’s. If you are in something for the long haul and don’t have a clock that is expiring, you might see the situation differently.

      1. ErikSchwartz

        One thing I certainly learned was you do not want to be the last investment that a fund makes. If you are, as earlier investments go sideways the investor starts needing your company to be a short term hit to make their portfolio successful.Basically you are no longer measured on your own merits but you are the 10 needed to win the game.

        1. PhilipSugar

          That is true no matter what. If the investor (vc, angel, whomever) has not made back their money as time goes on pressure really builds on any company that has done ok but not exploded. You didn’t get the benefit of the first three quarters. I’ve seen enough of these to be sure. If the investor has hit home-runs and made their fund, they are going to be disappointed (naturally) but will generally ignore the situation because it is a low value use of time, they are onto raising a new fund or new investment. If you are the “hope” to make the fund successful I have seen some dreadful behavior.

        2. thomasknoll

          I have always assumed this as well. Which makes me extremely interested in hearing @fredwilson:disqus’s perspective on this comment.How likely are you to start treating an investment, in which you probably claim to have invested in the team over the idea, as purely an investment to manipulate to a big win, vs helping the founders create that success?

          1. PhilipSugar

            Here’s the point: As an investor you can’t “manipulate to a big win”You can have sharp elbows, You can think you can replace management and have a big win. But the odds of either of those producing a big win out of what is a 1 or 2xer versus a 10+xer are very low, I’ve yet to have somebody give me a data point and I have asked. I know many, many examples of where those efforts drilled things into the ground in a deep smoking hole.This is a serious advantage that I’ve never seen Fred talk about because its an outcome he really doesn’t want, and doesn’t want you to have in your head. If he’s already got a 3x return on the fund where you are getting your money, if things are in the middle third he is not going to irrationally drive you to put all of your money on a long-shot, hail mary bet.He’s said he still has investments in some companies from the 90’s, but that certainly is not the outcome he wants (nor can he want), but again I believe that is the wasted middle third, but I don’t know what to do about it.So just like a VC is rational about not all outcomes are rosy, you as an entrepreneur should consider this as well.I fully realize beggars can’t be choosers and if the only money you can get is from X, that’s ok, just realize what you are signing up for.

  22. Alex Bea

    Should the funding stage of a company, (seed, A-round, B-round, etc) affect the number of VCs on your board?

    1. Ellie Kesselman

      Maybe, if investors in rounds A and B are substantively different. Investors in successive funding rounds often overlap though. EDIT: Number of board seats and roles i.e. independent, what constitutes conflict of interest, are set in the company By-Laws. For example, LP By-Laws Model 1, Section 4 BoD and for fun ICANN By-Laws, 6. Board of Directors.A large investor in a later round will likely want board-level participation. That’s a reason to avoid the scenario of rounds A – E, with add’l VC’s in each, thus too many cooks in the kitchen. * I’m not certain, it is merely what I’ve observed.

  23. Tom Labus

    Independence please.People not beholden to the CEO and who have been through various stages of growth and who have seen some crashes too.Reality should rule here not someone’s fantasy.

  24. ShanaC

    errr, what kind of sets of operational experiences should the board members have? Should one person be heavy on core operations, another marketing, cfo (obviously)? what makes for the best balances?

    1. JamesHRH

      being in charge.


        AND WINNING.

  25. Richard

    if board members are so important, why do so many companies have “ceremonial” appointments?

    1. JamesHRH

      Because a vast amount of PubCos are horribly governed.

      1. Richard

        Its a paradox, the best of the best become public public yet the boards of the best seem not to be able to get out of their own way.

  26. Lord of Grammar

    Whom You Want On Your Board.(couldn’t resist…)

    1. fredwilson

      that’s what you get letting an engineering school grad write a blog

      1. Richard

        The curse of the engineer, too solving problems to spend sufficient time writing about them.

    2. kenberger

      only thing you’re lord of is being wrong on grammar rules.pls do resist next time until you’ve at least looked them up.

  27. Brad Lindenberg

    Fred, how much equity do you usually give an excellent ex CEO board member who was been there done that?

    1. fredwilson

      i would suggest something like an option on $200k to $250k of equity value at the current valuation of the business unless the company is really early stage. for something really early, i would suggest 0.5% to 1% of the company.

      1. Brad Lindenberg

        Thanks Fred!

  28. Joe Marchese

    Spot on. I’m usually in favor of diversity of perspectives, but those with investor seats have a natural advantage that tilts the playing field toward them. For that reason, I recommend filling board seats with operating execs as a first option.

  29. Josh Lin

    I am curious to hear your thoughts on how you structure the board if you have a number of VCs who had invested relatively equal proportions. It’s natural for the VCs to feel that they have a stake in the company since their money is on the table, but how, as an entrepreneur, would you approach the discussion to determine which (if only 1) of those VCs should sit on your board?

    1. fredwilson

      well the first one to show up is a good way to do that

      1. JLM

        .You may not appreciate the brilliance of your answer.Many, many things in life are determined by being the “…first one to show up…”Half of success is showing up early and the other half is not quitting.Well played..

        1. fredwilson

          i am guilty of doing both a lot in my life and business

  30. John Revay

    “The CEO was seeking advice on some important strategic questions”I am sure you can not disclose the nature of that specfic strategic question……It may make an interesting post someday to discuss some of the “important strategic questions” that have arisen over the years while sitting on boards.



    1. William Mougayar

      So he can eat other board members that are not doing a good job?



    2. fredwilson

      i would like to see someone do that



  32. jdrive

    Amen. In recent years I have increasingly favored being the only VC at the table. Two-thirds of my companies now reflect this. And, despite the extra-heavy lifting occasionally required, I like it that way.

    1. fredwilson

      I see a trend Jim!

  33. hooman

    Funny timing for this post. I just wrote a post that could be viewed as almost a ‘companion’ to this one. Funny how people can be thinking along the same lines at the same times.http://www.blogtrepreneur.c

  34. leigh

    I thought diversity was going to be important to me. But truth is, we have a informal board (bc we haven’t had to raise any money and are about to hire employee number 16 after 1.5 yrs :):):) and the person i call is a CEO of a company that is about 10 times the size of ours. He was a CFO for years and helps me constantly weight the financial pros and cons of my decisions. If i had 2 more just like him who would debate with us, i’d be a very happy camper.

  35. fredwilson

    Get a really good VC on your side and then surround him or her with peers who will tell you what you don’t want to hear

  36. JamesHRH

    There has to be 50 years of business articles (starting pre-high tech era) that have some title like “Holy Crap, I did such a Good Job as an Engineer that they Made Me Team Leader. Now What?”Hell, its not just tech. I once asked an Art Director who was terrific with people ‘why aren’t you a Creative Director?”. Answer: ‘Creative Directors don’t get to draw. I will be a CD later on.” Awesome lady. obviously.On the 80-20 rule, technical people, like things more than people. Creative people like creating more than people.I am a people person: I don’t spend my weekends tinkering in the garage or sketching the waves on the lake. It stands to reason.When you look at any super successful startup, you see a wildly driven (or wildly arrogant) person that does not want to (or sees no reason to) give up control. So, they do everything.Some do it well (polymaths); some not so much.FB’s constant PR gaffes around privacy is the hallmark of an introverted, product person personality. Larry Page showing up 8 years ago @ major conferences in a lab coat falls into the same boat.With both of these introvert personalities, you see amazing positives. Zuck is clearly strong strategically & a master manipulator (not meant pejoratively) – See Instagram situation for proof of both. Page has learned from someone how to lead a very large organization – his recent refocusing of Google is mondo impressive.Unusual people, who likely benefitted from mentoring (and the historical example of a product genius like Bill Gates managing MS horribly).I think Reid is saying: I don’t want to be that guy, find someone who does.And, I guess @fredwilson:disqus is saying: I want to invest in the person that does want to be that person.

  37. PhilipSugar

    Observation rights really suck. I’ve seen nothing but hard feelings come from these. Everyone in the room has strong opinions which they feel are valuable and want to express. Since things really rarely come to a vote you either have essentially another member or somebody that is really pissed off when you say then can observe but not participate.John does bring up the heart of the issue. Each time you do a new financing that party will want to join the board. Because the last money in does really dictate the terms that seat will be granted, the only solution is to get rid of past director and that is a very sticky for a ton of ego and contractual issues.

  38. John Revay

    Thanks – great suggestion about mutual CEO

  39. JamesHRH

    Lead investor gets a seat at the table. Every other investor either trusts the lead or does not play ball.

  40. JamesHRH

    No one has ever heard of the failures – duh ;-)I am complementing MZ & LG – rare specimens who are willing to power through something that is not in their wheelhouse and eventually, do a good job as CEO.Your ‘so what’ comment goes right to the heart of Reid’s thinking: he is someone who believes that no one is good at everything and you should focus on your strengths. Why become CEO and ‘so what’ the job performance, when you can bring in Jeff WIner and have him crush it.Trust & control are the main reasons most people don’t bring someone in.PS – Jobs was a people person. Ives & many others before him were the product people. Steve waved his hands, had ideas, did keynotes, sold & talked vision: stuff Reid wants to do.The mission, the why, often comes from someone other than the person who builds the product. Some of them – Jobs, Dorsey – build beautiful things or elegant solutions. Most product people do the what: the why is so intuitive to them that they can’t express it. They tack on the why later, when someone helps them pull it out.Garret Camp of StumbleUpon / Uber / BlackJet is a classic example. He wanted to have the internet work ‘ like a TV remote’. If someone asked him Why, he just looked at them funny (I bet, I don’t have first hand knowledge).

  41. PhilipSugar

    To clarify, I have no problems with observers, just observer rights. One word but it makes a difference. One is guest and realizes it, the other knows its their right to be there. I’m drawing a line from only two points, but I don’t care to get a third.

  42. ShanaC

    so maybe one of the people on the board should be “the mentor”

  43. JamesHRH

    Not for Reid, he is saying ‘bring in a guy to do that stuff at an awesome level. I don’t find those jobs as interesting so I will not do an awesome job at it.’I just think it is a valid PoV.

  44. JamesHRH

    Your comment re: Jobs is the heart of the issue.I view ‘people people’ as people who are extroverted, interested in how things affect people & interested in how people do things. Steve hits on all counts: extroverted (keynotes), impact (‘change the world’) doing (“think different”, design obsession).Impact on people was what we craved – even if he was an ass.My wife defines extroverted as ‘people who gain energy by interacting with other people’ & introverted as ‘people who lose energy by interacting with other people’. It is a great, core definition of the concepts, IMO.I am not sure that introverts (including the people I have listed) care that much about the impact they have on people. They care more about control of the things that matter to them. That may very well lead them to lead large groups of people,My argument today is that there is more than one path & that Reid’s thinking is valid. I agree with you though, that product oriented, introverted people can do the job.They will just do it differently and for different reasons.

  45. PhilipSugar

    That’s easy to say until you really need money and the person that is going to give it to you says I demand a board seat, and the person that is currently on the board says I’m not giving up my seat.

  46. JamesHRH

    I agree. WWFD?

  47. John Revay

    Nice distinction