Archive for the ‘investors’ Category

Building a Board: Composition by Company Stage

Paul McManus of Boston Millennia Partners asked whether I have data on how board composition changes by company stage. I can slice my data using rounds of financing, company age, and a variety of other metrics. Most of those metrics tell similar stories. To pick one of them, the chart below shows board composition by company age: Angels are consistently 6-10% of boards (an interesting pattern), the % of VCs rises relatively consistently from a high first-year base of 34%, and the % of industry execs/reps also increases consistently. As these “outsider” categories collectively increase, the % of insiders drops markedly. (Note that this leaves out “other directors” who don’t fall into these 4 categories.) This is using the same data as I am using in the Boards paper (444 private IT companies, collected in 2000, 2001, and 2002) and in the tables below. It’s possible (and easy for me to check, using my annual-survey data since then) that boards have changed systematically since 2002; feel free to post comments on any changes you have observed since 2002.

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Building a Board: The Impact of Company Stage

In response to the original post about the “Building a Board” results (see below), Tim Connors of USVP inquired about the role played by the company’s stage of development. Even though our analyses (and the original blog posting) focus on the linkage between Board characteristics and CEO characteristics, we also controlled for the impact of the company’s stage of development. (Other controls were the company’s industry segment and the time period in which the data was collected.) We used the following Company Stage controls: # rounds of financing Dollars raised in last round Revenues in current year Company age (months) Number of employees Here is the impact of each variable on our 3 Board dimensions. (Empty cells indicate relationships that were not statistically significant.) So the results support Tim’s contention that Company Stage has a key impact on Board characteristics, but hopefully add more details to that, highlighting which Company Stage variables are the strongest drivers of each Board characteristic. Once again, feel free to post any thoughts on individual cells in the table (whether they make sense to you, whether you’re surprised that they’re empty, etc.) or on other overall patterns we are missing! (One last note on the dataset: The dataset we are using for this paper is comprised of 444 private IT companies, collected in 2000, 2001, and 2002. We use the three years to help eliminate any artifacts introduced by market fluctuations, using year dummies to control for differences across the years.)

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Building a Board: Mentorship? Monitoring?

You’re a founder-CEO with deep technical expertise but little business experience. VCs tell you that they’ll help guide you through the treacherous business issues you’ll face as you grow your business. (In fact, you are having trouble finding any VC firms whose Web sites don’t tell you they’ll do that.) Do they, indeed, provide such mentorship when it’s needed? In contrast to boards of directors in public companies, which play more of a monitoring role (evaluating the CEO and top management; making decisions about senior hiring, compensation/promotions, and firing; reviewing major decisions), boards in new ventures need both to monitor and to mentor their CEOs and top managers. Compared to the relatively stable and complete management teams in public companies, the boards of new ventures need to play a key mentoring role and can potentially add more value to the company by doing so. Broadly speaking, the following factors can increase the need for mentoring in new ventures: External challenges – e.g., rapid changes in competitive landscape, technological change, need to get initial customers. Internal challenges – e.g., high rate of hiring, the need to formalize some processes without endangering company culture and operations. Holes in founding team – the founders might not be experienced in growing new ventures and the team may have holes in key functions (e.g., CTO early on, CFO later). New non-founders – executives hired to fill holes or “upgrade” key positions (e.g., a new CEO who replaced the founder-CEO; see “Founder-CEO Succession” posting) who aren’t as familiar with the new venture or its people. In work that I have been doing with Warren Boeker, we have begun examining the functioning of boards in new ventures. Our focus has been on how the CEO’s characteristics affect board characteristics, focusing on 3 board characteristics that should reflect […]

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