CEOs of start-ups face many challenges. Among many tasks, they have to set up the organization, write the business plan, build an effective management team and, of course, attract finance. How concerned should they be with the composition of the board? And what can CEOs do to ensure that the board helps rather than hinders their company?
This article was authored by Shelley Margetson from V-Bio Ventures.
Key considerations when fundraising
Investors often require a board seat along with their funding. When raising cash, CEOs may be tempted to take the money and welcome the board members, no matter their profiles. However, it may be more prudent to take a step back and consider the big picture before approaching potential new investors.
Having an effective board with a common mindset is important for any company; perhaps even more so for an early-stage biotech. Member dynamics play a big part in the effectiveness of a board, so ensuring there is a right mix of people and skills will benefit both the CEO and the company. Start-up boards are dominated by investors, so selecting the right syndicate is an essential first step. But what are some things to bear in mind?
Member dynamics play a big part in the effectiveness of a board, so ensuring there is a right mix of people and skills will benefit both the CEO and the company.
Firstly, it’s important to ensure that members of the investor syndicate have either worked together in the past or have similar approaches and expectations in managing their portfolio companies. Differences between investors, in terms of experience, risk-profile, and the stage of their funds, will accompany the persons joining the board. Any conflicts may result in clashes when determining or changing the strategy of the company. It is hard to find perfectly aligned investors, but CEOs can do their homework on previous investor syndicates. Knowing which combinations have worked in the past (and which have not), will help CEOs target investors that will result in a more effective and harmonious board.
Complimentary crew and an independent captain
Having a good breadth of skills and experience around the table will help board room dynamics immensely. Individuals with different expertise will benefit from each other’s input and jointly be able to guide and support management more effectively. It’s also worthwhile keeping an eye on the numbers though: too many board members can generate an excess of discussion, potential disagreement, and bigger barriers to reaching a consensus. It’s best to run a tight ship with a select crew of complimentary individuals.
Read this article to learn how to build the right team for start-up success.
Sailing on with the ship analogy, selecting the right captain for your board will also go a long way towards avoiding conflict and achieving success. Whilst a biotech start-up will always have investors at the board table, selecting an independent chairman will benefit all parties involved. An autonomous director who represents neither the investors, the founders, nor the management, can bring balance to a board. It is the role of any chairman to ensure that all opinions are heard, alternatives considered, and decisions are made in a timely and orderly fashion. A strong independent chair can help to secure positive outcomes for all stakeholders and avoid the build-up of unnecessary discord on board.
Empowered board members increase efficiency
The board is responsible for a wide range of tasks. To perform their many functions efficiently, board members need a good deal of individual empowerment. This is particularly important for investment fund representatives, who make up the majority of start-up board members: these individuals need to be able to confidently make decisions without having to consult their team for every decision. Constant consultation slows progress. Of course, there are times where wider input is essential, but in general terms decisions should take place immediately following board discussions.
By providing clear and informative documents in advance, CEOs can help put board members in a position where they can make informed decisions on the spot.
Although CEOs have little control over whether the board members are empowered by their respective funds, they can do things to help the dynamic. By providing clear and informative documents in advance, CEOs can help put board members in a position where they can make informed decisions on the spot. Time is of the essence in start-ups and unnecessary delays can be avoided with a bit of forward planning.
Building trust
Building a trusting relationship between management and board members is essential for the success of a company. The two parties need to be mutually supportive, through both thick and thin. When things go well, boardrooms are relatively calm places where decisions are easily made. However, it’s not always smooth sailing for start-ups: companies often encounter challenges. While overcoming these issues, CEOs need to inform the board of any material impact or plan changes, but they will only feel comfortable doing so if there is already an established relationship of trust. If a CEO’s experience is that of criticism and a lack of support, then the company may run the risk of withholding problems from the board for too long, leading to dire consequences.
Building a trusting relationship between management and board members is essential for the success of a company.
Board meetings should not be the place for surprises, so proactively maintaining open lines of communication is essential. CEOs need to ensure that all board members are fully informed ahead of meetings, so that that they can come prepared to decide on the next steps. Regular interactions with board members in between meetings also help members stay up to date so they can tap into their network when appropriate. Of course, trust needs to be earned, which takes time. But it is in everyone’s interest to build relationships that will allow the CEO to address tough topics and give a sense that “together, we will try to solve this”.
Friend or foe?
CEOs sometimes view board interactions as burdensome and time consuming. If board dynamics are poor, trust is lacking or individual members aren’t empowered to make decisions, board meetings may well be long and counterproductive events. In cases such as these, unfortunately all too frequent, the board may not be considered a friend to management.
On the other hand, when the board is balanced and the relationships are good, a board can be an extremely helpful tool. CEOs can help to ensure this is the case by considering board composition when fundraising, selecting an independent chairman, as well as avoiding boardroom surprises and streamlining decision making through the timely preparation of materials. Delivering on expectations previously set at board meetings will also help build trust. The better the dynamic between the management team and board, the greater the chance of success for the company.
