First time entrepreneurs often need to learn to better manage their boards. They rarely understand what boards expect of them or what they should expect from their board. The appropriate role of a board changes as a company matures. Entrepreneurs face inherent conflict of interests between their roles as shareholders, managers and their role as board members.
Venture capitalists have a wide range of views on the proper functioning of a startup board and face their own inherent conflicts of interests. As a result, startup board decision making about crucial issues such as company strategy, exit opportunities, fundraising, compensation, and hiring and firing a CEO is often ineffective, unnecessarily contentious, and may even jeopardize an otherwise promising startup. At this Rock Center for Corporate Governance event, participants discussed the structural reasons why these challenges exist and compared some of the private board settings with public boards, where most of the corporate governance research, jurisprudence and executive education is focused.
Miriam Rivera, Co-founder & Managing Partner, Ulu Ventures
Miriam co-founded Ulu Ventures, where she is the Managing Partner. Ulu is a seed stage angel fund focused on IT investments and has made 50 investments in the last five years. Approximately half the companies have raised one or more subsequent rounds with leading firms, including Benchmark, NEA, Accel, Floodgate, Trinity, Matrix, and Khosla Ventures. She is also the co-founder and co-president of Stanford Angels & Entrepreneurs, an “open source network” of Stanford alumni investors and entrepreneurs. Miriam has taught in the Stanford Technology Ventures Program in the School of Engineering on start-up board issues and is a mentor in entrepreneurship at the Stanford GSB. She is also a Kauffman Fellow in venture capital.
As a first generation college student and scholarship recipient, Miriam graduated from Stanford University where she earned the AB, AM, and JD/MBA degrees.In 2008, Miriam received the Jerry A. Porras Leadership Award from the Stanford Graduate School of Business. In 2006, the Hispanic National Bar Association voted Miriam “Latina Lawyer of the Year”, and Hispanic.Net named her “Latina Executive of the Year”. She was also selected by Corporate Counsel magazine as one of the top 10 corporate attorneys in the United States in 2005. In Spring 2011, the Google Legal department Miriam helped found was named 2011 Best Legal Department by Corporate Counsel magazine and the Silicon Valley/San Jose Business Journal voted Miriam one of the top 100 Women of Influence in Silicon Valley.
Clint Korver is the Chief Operating Officer of NovoEd, an online
learning platform spun out of Stanford in early 2013. He is also a
lecturer in the Stanford Technology Ventures Program where he teaches Startup Boards, a graduate level entrepreneurship class for students starting companies. Startup Boards covers principles for building and working with a board of directors. Students then apply these principles to their own board of experienced entrepreneurs, venture capitalists, and domain experts created for this class. A key goal of the class is for students to make meaningful progress in building their startup.
Prior to joining NovoEd, Clint co-founded Ulu Ventures, a seed stage angel fund focused on IT investments that has made 50 investments in the last five years. He also founded and led four Silicon Valley startups and co-authored Ethics for the Real World (Harvard Business Press 2008). He earned a PhD and MS in Management Science and Engineering from Stanford and a BA with honors in Mathematics from Grinnell College, where he currently serves as Chair of the Board of Trustees.
Anthony Soohoo, Co-Founder & CEO at Dot & Bo, a new venture-backed online entertainment commerce company in San Francisco.
Previously Anthony served as the Senior Vice President and General Manager of the Entertainment & Lifestyle Division Interactive at CBS Corporation. Anthony joined CBS in 2007 with its acquisition of Dotspotter, one of the fastest growing community-powered entertainment properties on the Internet where he served as co-founder and CEO. Prior to founding Dotspotter, Anthony was Vice President at Yahoo! responsible for the strategy, management, development and financial performance for various business units. Prior to Yahoo!, Anthony was COO of ALWAYSi, a user-generated video startup, leading the daily operations of the business, and shepherding the company towards a successful acquisition by Hollywood Media Corporation (NASDAQ: HOLL). Previously, Anthony held product management positions at early web search company Inktomi and Apple.
Anthony earned his bachelor’s degree from the University of California, Davis and an MBA from Harvard Business School. Soohoo was featured in The Hollywood Reporter’s “Digital Power List” as one of the top 50 executives leading the charge in new media. He was formerly on the Board of Directors of Revision3 (acquired by Discovery Communications) and is an advisor/investor to a number of consumer startups. He lives in Palo Alto with his wife and their two children.
Bob has a proven track record as a startup-entrepreneur across multiple and diverse industries. Prior to joining SIPX, Bob was Chief Executive Officer of SmartyPig, a social-networking enabled financial platform that encourages smart savings by allowing users to share their goals and invite friends and family to contribute. He was also Co-Founder and Chief Executive Officer of Barfly Interactive Networks, provider of a powerful social medium that engages customers and benefits both bar owners and advertisers, which was recently acquired by TouchTunes Music Corporation. Before Barfly, Bob served as President and Chief Executive Officer of Britestream Networks, supplier of the highest performance commercial encryption / encryption technology in the world.
Bob was previously President and Chief Executive Officer of Pixim, Inc., a supplier of innovative semiconductors and software platforms for digital image capture and processing. Prior to Pixim, he was General Manager of the Microelectronics division of Lucent Technologies, which launched the first production rollout of 802.11 products. Prior to Lucent, Bob was General Manager of the chipset organization at Advanced Micro Devices, which he founded and built from the ground up. Bob holds a BS and MS in Electrical Engineering from the Stevens Institute of Technology.
F. Daniel Siciliano (Moderator)
Professor of the Practice of Law and Associate Dean for Executive Education and Special Programs; Faculty Director, Arthur and Toni Rembe Rock Center for Corporate Governance
F. Daniel Siciliano, JD ’04, is a legal scholar and entrepreneur with expertise in corporate governance, corporate finance, and immigration law. He assumes a variety of leadership roles at the law school, including faculty director of the Arthur and Toni Rembe Rock Center for Corporate Governance, associate dean for executive education and special programs and co-director of Stanford’s Directors’ College.
Previously, Siciliano was a teaching fellow for the law school’s international LLM degree program in Corporate Governance and Practice and executive director of the Program in Law, Economics and Business. He is the senior research fellow with the Immigration Policy Center and a frequent commentator on the long-term economic impact of immigration policy and reform. His work has included expert testimony in front of both the U.S. Senate and House of Representatives. Prior to joining Stanford Law School, Siciliano co-founded and served as executive director of the Immigration Outreach Center in Phoenix, Arizona. He has launched and led several successful businesses, including LawLogix Group—named three times to the Inc. 500/5000 list. Siciliano serves as a governance consultant and trainer to board directors of several Fortune 500 companies and is a member of the Academic Council of Corporate Board Member magazine.
Need right format for financing. Each form has their own tax or legal advantages. Need to decide ownership of private entity (portion for founders) before going public. Establish some degree of formality with regard to board and meetings right away. Self-protection by following formalities. Piercing the corporate veil to pursue directors own assets if legal housekeeping is not followed. Additionally, you won’t attract good investors. D&O issuance will be needed before you get angel investors and director investors.
Board – governance and guidance. Early on mostly guidance. Don’t screw up the governance. Get the governance right to attract the right people to give you the necessary guidance. Conflict starts with the founding. When you’re raising money may depend on venture fund’s timeframe and where they are in their business cycle… could be bad if needs don’t mesh. Get good advice from real CEOs who have been there. Maybe they had to sell prematurely to close out a fund. Disputes about when stock is sold. Your legal counsel should have multiple experience with a variety of companies.
Assembling a great board. If you need VC money they will have a big say. You will want board members useful to you and aligned with you. Don’t shoot for big names; shoot for someone a few steps ahead of you. Build it to a Billion (book) 7 factors. VC funding not correlated with success. Customer and partner representation is more important on your board. Need to get agreement on day 1 about how to divide the money because you won’t get agreement on day 10. Everyone commonly thinks they contributed more value than they did. Biggest flaw is focusing on funding, instead of building company with customers and partners.
Advisory board – filling out the cracks you still have after putting together your board of directors. Can they change the course of your company with a phone call? If so, bring them on. Advisory boards should be transitory, dynamic with members moving on and off. Useful life of advisors is usually around 3-6 months. If more valuable renew agreements and stock to keep them for another cycle.
What does good startup board meeting do? It should be useful to CEO (whereas at older companies, board meetings should be informative for directors). Pushing the company along. Two or three strategic items. CEO should set the expectations for the meeting. Not a data dump for board members but a strategic discussion on outcomes.
Maintenance of relationships between meetings is critical. Board members should be involved between meetings. Bob gets together about every two weeks to go over problems. Directors should be able to talk to people in the company but must be respectful of CEO’s role. Anthony – at end of every board meeting, he leaves and board meets in exec session. They can bring in any employee they want to (although this advice seemed actually to only apply to first reports or others the CEO has introduced to the board). Implement exec session at every meeting so not alarming when it happens. Norm to be able to reach out to any direct report of the CEO, not people way down the line. Happy hours, open house, etc. good for building relationships between board and high level employees. Junior members need to know company isn’t in trouble when questioned by directors. Informal sessions are good to set employees at ease.
Legal responsibilities of startup board? No real distinctions from public board. Private might have more complications, potential conflicts of interests… so might require more disclosures. Should not be privy to certain information if one of a director’s companies might be on the opposite side.
Insecurity. Be intellectually honest. Withdrawing begins the death spiral. Encourage debate at board meetings. Focus on how to drive healthy debate. Ownership. CEO has to own it. Need backbone. Diverse boards bring good debates at board meetings. They prepare more and have richer discussions, not group think.
Director’s College for Startups (VCs) to be offered by Stanford. Option holders are typically not protected. Common shareholders do have rights. Keep some board seats open in case you decide to pivot. Its about relationships. Advisor relationships, rather than board. Many directors willing to exit board if company should be going after different type of advisor.
It was a good turnout, with a good mixture of academics and students involved in starting their own firms. The panel was informative and experienced. It was a great opportunity for those involved in startups to get some excellent free advice and to network before and mostly after the program. The Rock Center will be doing more programs on startups.