Question #1: Is it good to have a split board?
Question #2: For the founder-CEO, is having another founder on the board a good thing or a big mistake?
In the Vermeer case with which we introduce the semester, the founding team of Vermeer is faced with a term sheet proposing an even-numbered, split board: 2 people from Vermeer and 2 VCs. Similarly, in my Ockham case that we did in class this week, the initial board was 2 founders and 2 VCs. From my past experiences, this situation seems to be a transitional one, wherein the even-numbered board is a temporary situation until a fifth director (often an “independent” director) is brought in, as happened with Ockham a few months later. However, while the split structure is in place, it would seem to pose a danger of gridlock, among other things.
Looking at the data from my “Mentoring and Monitoring” boards paper, this problem is predominantly an A-round problem. As shown in the chart below, among the 99 ventures in the dataset that had just raised their A-rounds, 4-person boards are even more common than 5-person boards (see the blue line). This pattern changes in B-rounds and after, as shown in the red and green lines below (representing, respectively, 180 ventures that had raised a second round, and all 524 ventures in the dataset): after those rounds, odd-numbered boards are the dominant model.
Thus, some questions: Have you had to deal with an even-numbered board, especially one with a 50/50 split between founders and investors? Was it only a transitional state or was it a more sustained structure? (How long did it last?) What mechanisms were tried to avoid the problems inherent in such a structure?
Note: In other posts, you can see more data on how board composition changes over time and on other factors affecting board size, meeting frequency, and composition.
In a related vein, when Jim Triandiflou of Ockham came to our class and was reflecting on his early decisions, the one decision he regretted was having two founders (himself and a co-founder) on the board. Instead, he said that only the founder-CEO should serve on the board. Soon after I heard this from Jim, another founder-CEO complained to me about the tensions of having a co-founder (a lower-level executive reporting to the CEO) also serve on the board (and thus be evaluating the CEO’s performance along with the rest of the board).
A divergent — and common — perception is that having co-founder “allies” on the board can help the founder-CEO. (Some academic papers have asserted this but not tested whether it was true.) In your experiences, is it good to have multiple founders on the board? Are those co-founder directors “allies” who make life easier for the founder-CEO, or are they problematic?
if there are two founders, we typically will structure it as a 5 person board with the ceo, a founder seat, two series A seats, and a mutually-agreed 5th seat. Sometimes the 5th seat is empty at funding but we work to fill it with pace. this structure also allows for only one founder on the board if a new ceo is brought in.
wow, tim’s opinion seems way too favorable to an A round investor to me. At FeedBurner, our A round resulted in a three person board - 2 founders and the series A lead. Our B round resulted in Ceo seat, founder seat, the A lead, the B lead, and an independent to be nominated by the CEO and voted on by the board. That seems a lot more reasonable and balanced to me.
I have found that 5-person boards for early (A-round) stage companies is too large. The CEO will spend as much time managing the board as he/she will managing the team (which is probably the same size).It’s also very difficult to remove a board member (particularly a VC) as the company grows. It’s not uncommon for B-round and later stage VC backed companies that start with 5-member boards to grow to 6 or even 7 member boards, which is just too cumbersome.I agree with Dick’s assertion that 3 is the ideal for a “typical” A-round company growing to 5 at the B-round. Finally, for founders, it is important for them to be aware of the distinction between a “common” seat and a “CEO” seat.
If you have two VCs coming in on the series A, then each VC will want a board seat. If you have one VC, then you can do a 3 person board but i would’t recommend two founders and a vc. I think it is important to have an independent director early with very deep industry experience- can bring early relationships, customers, competitive point of view, and potential some key early hires. If you had a 3 person board, that would mean one founder (the ceo), your vc, and the industry expert. Best way to do it is figure out how to cashflow on just one round and then you don’t ever need more than two VCs on your board. Insert the old VCs are like martinis joke here: one is good, two is better, three is a problem!