Most businesses are founded without a formal Board of Directors or Board of Managers. Once formed, early boards are typically made up of founders and a few early “angel” investors. Early-stage investors want their investment to grow, and yet many are inexperienced or unwilling to engage in helping secure follow-on capital. As the business proceeds and needs additional capital, the burden falls back to the founders, who are also working tirelessly to grow the business. Raising capital is a full-time job for an inexperienced founder, and leading an early-stage company is more than a full-time job, so by default it is not possible to do both effectively. And yet, this scenario is the norm and non-experienced founders struggle to create real success, some to the point where they are forced to stop trying.
Critical to success is securing board members that will help founders secure the needed go-forward capital. The obligation of a board member is to manage shareholder value, including their own. Shareholder value is increased when the company itself increases in value, and that happens with growth, many times fueled by additional capital. Sitting on a board of a company needing capital and forcing those leading the company to secure such capital on their own, at the expense of driving the business, is irresponsible to the company’s shareholders, and yet this scenario is played out daily.
I have worked with hundreds of early-stage businesses that have raised capital, and I counsel every one of them to build a board of directors that have applicable experience, connections, and a willingness to engage as needed. I also counsel them to continually update those on their boards to fit the needs at hand. If you need to raise profession / institutional capital, you need that kind of talent on your board, either prior to or as a direct result of the raise. That talent can then help with future raises, which will add new talent to the board and the process goes on. To grow from start-up to early-stage to later-stage requires different skills and experiences over that time on both the management team and the board. Failing to make the needed changes in either area inhibits success.
