Get Kicked Out of Your Own Company, in 1 Simple Step

Today we’re going to talk about Board members.

Unfortunately, most founders have no idea what they’re doing when it comes to choosing their board…

…or offering board seats… or what can happen as a result.

They think “well, this person / fund is investing most of our round, so we should probably give them a board seat….right?”

But there’s so much more at stake, because…

Poor choices when offering board seats can get you kicked out of your own company.

And here’s the cold water:

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You ain’t Sam. You ain’t Steve Jobs either.

If your board throws you out, it’s probably permanent.

If the Prophet of AI Sam Altman can get kicked out of 2023’s most darling company by his board, then there’s no way you’re gonna be safe.

Unless…

First, understand what a board is for (nutshell version)

By US law, every corporation has to have a board - even if it’s just you to start.

VC Gregg Adkin put this overview together that I think is a great summary of a board’s role & value.

But boards can go bad.

I’ve walked founders through handling their board & shareholder disputes countless times, and I know the horror stories firsthand:

One founder’s VC partner sat on his board. The partner (at a Tier 1 VC) went through a bad personal situation, and started taking it out on the founder…

…at the board meetings, publicly: “The founder is running this company into the ground”

…and even went so far as to privately call up other investors on the cap table to badmouth the founder, to the point that they passed on the next round & said “you gotta sort your sh*t out with the VC” before they’d come up with more capital.

Yikes.

It ain’t pretty.

Here’s how to make sure it doesn’t happen to you:

Step 1: Ask yourself “Why” - and them, too

This part is critical: money isn’t enough.

Why do you want a board?

More specifically, why do you want this person on your board?

If it’s a fund asking for a board seat, you might also want to ask them a few probing questions too, for example:

• Why do you want a board seat?
• Who would you envision sitting on our board? (*they’d probably have the right to appoint a different person later)
• What value would you be able to add at board level?

When in doubt: ask other founders whose boards that person sits on for input.

Sidebar - While it’s not a path for every business, it’s actually possible to raise $10M+ without adding board members.

Step 2: Build your round - and your board - intentionally

Don’t offer a board seat solely as a bargaining chip to cash in a bigger check.

Set criteria, for example:

• How deeply does this investor believe in our mission?
• Do they have the capital depth to come in harder on our next round, or will they be tapped out? (i.e. if you’re at Seed, then will they be able to increase their investment in your Series A)
• Is it absolutely necessary for them to be a board member in order to contribute value?
• Do we need to raise so much from this individual investor? Is there a deal where they invest less, don’t get a board seat, but we still close the round?
• How does this person help us not just for today, but for the long term?

Clear criteria for potential board members goes hand in hand with investor value-add.

Step 3: When you do choose, be careful.

You might want the investor’s money, but you want them to stay away from your board.

If investment is like marriage, then your board members are your in-laws:

Great if they’re wonderful, supportive and helpful.

But absolutely terrible if the relationship doesn’t go well - even if you only see them infrequently.

One founder I know has been stuck in board member hell for two years. She took family-office money, but the family appointed their useless son to the board - and it has gone exactly as you imagine.

Last I heard, the family office’s board nominee instructed the founder to torpedo their AWS cloud framework in its entirety, and go buy server racks & spin them up onsite. For an enterprise software app. 🤦‍♂️

Your gut is almost always going to be right - if you think something might be “a little off” then there’s an outsize chance that it’ll be disaster.

Summary

These relationships - and the power to both build & destroy value - are way too important to get wrong.

No one gets a free ride on your board.

Set your standards, or you might be letting the devil in the door.

Remember, your continued employment might be riding on it.

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