Does your early stage venture need a board?

Does your early stage venture
need a board?

Yohan Albo - CEO DataToCapital Consulting LTD.

By Yohan Albo

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Like most things in life, it depends. But here are some key considerations for your Startup when appointing a board.

Understanding the types of boards

The two main types of boards are advisory and formal boards respectively, which are similar but perform slightly different functions. It is important that Startups understand the difference between the two, especially because they have legal ramifications and consequences.

Advisory board

An advisory board is a group of external consultants so-to-speak, who offer strategic advice and guidance to the founders of the startup. This group ordinarily operates informally, with board members typically receiving a small equity stake in the startup (normally less than 0.5 percent).

Formal board

Also referred to as a “board of directors”, a formal board has legal responsibilities and fiduciary duties to the company under laws and contractual agreements.

 

One of the main differences then between these two types of boards is that the decisions and recommendations of formal boards are legally binding, unlike advisory boards, which merely offer informal advice.

 

However, advisory board members must still be careful not to fulfill the exact same role as formal board members. If an advisory board member does so, even though officially an informal advisor, then he/she may actually have the same legal liabilities as a formal advisor.

 

Generally speaking, early investors want startups to have at least an advisory board whereas later round investors usually demand a formal board in order to ensure a strict form of governance and accountability. Nonetheless, even in the early stages of a startup, it is important to prepare monthly financial statements, have meetings with advisors and budget ahead. If you do this in the early stages of your startup, will hold you in good stead when it is necessary to appoint a formal board.

Who to appoint ?

Choose a Candidate

When choosing who to appoint to your board, it is a good idea to have a mix of diverse board members, with varied skill sets and experiences. One person who must be on the board is a reputable venture capitalist that has well-rounded experience and a vast network. Having access to a VC’s network can result in further capital funding, if needed. Additionally, experienced VCs have gained knowledge over the years as to what works and doesn’t work with startups.

 

Startups should also look to have both a functional and domain expert. A functional expert has deep knowledge in a particular area of the business such as marketing or sales whereas a domain expert has experience in a particular sector such as agritech or medtech.

 

Having said that, when appointing your board, ensure that you are not just merely ticking boxes with the titles of people your investors require on your board. Rather, it is essential to make sure that you will have a positive relationship with your board members and that they will bring value to your startup through their deep industry and functional knowledge. Both these criteria are necessary. If you don’t have a positive relationship with your board then you will find it difficult to accept their advice and get along with them no matter how good it might be. If you have a positive relationship with your board but they give you bad advice, then it could have disastrous consequences in the long run no matter how positively you feel in the meantime.

When to appoint ?

As a rule of thumb, your startup won’t require a formal board until the second round of capital raising. However, as mentioned earlier, it is still a good idea to have an informal advisory board from who you can receive guidance and bounce ideas.

So should your startup have a board ? Short answer: Yes. 

Long answer: In the beginning your startup should have an advisory board and transition into a formal board as it receives more rounds of funding. However, those on your advisory board do not necessarily have to be on your formal board as well. In fact, most startups appoint completely different members to these boards. Just ensure that you pick the right people that will provide value to your venture.

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To contact DataToCapital

DataToCapital is a boutique management consulting firm that supports global tier-1 firms and start-up companies operating in Israel in their route to excellence and market dominance. Our core services, designed for CEOs, Executives (VP-level and above) and Entrepreneurs, can be divided into three areas: Market Intelligence, Corporate and Product Strategy, and Execution Support on top-down strategic initiatives.

The quality of the work we deliver in the three areas mentioned above is equivalent to what your company may already get from the top-3 consulting firms that operate in the Israeli market, BUT here’s the twist and why our tier-1 clients think we are superior.

We don’t only provide smart recommendations, we work closely with the management team and can also support driving the execution of their strategic initiatives behind the scenes or as a proxy.

We are at the strategic intersection of Business and Technology. Thanks to our rich background, we know how to connect the dots between the two worlds, and how to be very creative when it comes to disrupting business models or addressing sub-optimized processes with the help of advanced technological solutions (Machine Learning, Big Data, Data Visualization, Enterprise Software Solutions, and many other tools present in our toolbox).

This is a built-in feature. No account manager, no complex communication chain, etc... This is why our firm aims to dominate the management consulting market in Israel with no more than eight talents (...on steroids).

Our long-term vision is to become the trusted advisor to the most influential businesses and institutions operating in Israel, and help them become global leaders in their markets.

DataToCapital Consulting Is An Active Member Of The Israel Advanced Technology Industries (IATI) Association And Of The Israel's Directors Union