In this article, Zechariah J. Dean, Chief Dreamer of Dean Venture Studio introduces Building a Board of Directors – Six Essential Factors to Consider.
One of the critical junctions in an investment dialogue with investors is the revelation of who resides on your board. It’s common knowledge that investors largely invest in the entrepreneur, their team, the progress which has been made against historical plans and the robustness of the business plan moving forward. However, there is often a hidden item which seals the deal, which is who sits on the board of this company. It’s not essential to have a board when you first set up your venture, but when you begin to raise funds from sophisticated investors, they would place some emphasis on who is overseeing the governance of this company. In short, the board provides investors comfort that a) their investment is protected and b) an eagle eye is kept on the management team to ensure they do not veer away from what the company is out to achieve.
Establishing a board from scratch is no mean feat. In this article, I share my opinion on the six key factors entrepreneurs should consider when looking to establish a board for the first time.
1. Access to investors
One way of accelerating the success of your venture is to attract a board member who has access to a large pool of investors. If such individuals agree to become a part of your board and are willing to open their network of investors, this can be of immense assistance and can help you accelerate dialogues with investors with whom they have established relationships.
2. Industry knowledge, network & contacts
Individuals who have deep knowledge of the industry in which your venture operates can help you initiate and secure commercial relationships. Such relationships enable you to validate the commercial viability of your proposition and prove to incoming investors that your venture is able to deliver in the marketplace and hopefully generate revenue. In other instances, such relationship may not (necessarily) generate revenue, but enable you to build a case study so other similar companies would be willing to sign-up and work with your business
3. Ingrained knowledge of the venture lifecycle
Having a board member who has intimate knowledge of the challenges of designing, growing and exiting a venture can prove extremely useful. There is a raft of challenges an entrepreneur faces when their business grows. From regulatory to human resources, legal and sales risks, being guided by someone who knows where the landmines are buried can help you avoid making critical and (at times) catastrophic mistakes.
4. Track record, reputation & exits
The positive reputation of certain individuals on your board can also drive immense value. Investors would be buoyed by the track record and exits of certain individuals and how their influence can drive value in the business. Having experienced the journey multiple times and knowing the science behind build successful businesses, investors will be attracted to having such investors overseeing the governance of a future investment.
5. Ensure there is chemistry
Ensure there is chemistry between you and the individuals you attract to the board. Whether their position on the board is due to their industry knowledge, track record of exits or ability to attract investors, it is imperative that such individuals are able to understand your mindset, can serve as good mentors.
There are essential items related to remuneration and the structure of equity that is awarded to board members. From experience, trying to defer such remuneration and issuance of equity until milestones have been achieved is always in the best interest of the entrepreneur and the venture at large.
Zechariah J. Dean is the Chief Dreamer of Dean Ventures. Zechariah is a social impact technology entrepreneur who believes technology entrepreneurs have the potential of solving many of the issues facing our world, whilst also providing a superior return to shareholders.
To hear more from Zechariah please connect through the following channels:
- Twitter: @zechonomics
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