What are some of the best practices to help founders effectively
leverage their boards, particularly when seeking investment?
Jessica He of Torys’ Emerging Companies and Venture
Capital group sat down with Hamzah Nassif, partner at Real
Ventures, to discuss key considerations for founders of startups
when working with their boards. Prior to joining Real
Ventures’ Toronto office, Hamzah worked in a venture builder
in the Middle East, where he invested in companies and helped
founders build their early stage startups.
You can watch Jessica and Hamzah’s conversation by
clicking on the video below, or keep scrolling to read through
their written FAQ that covers these issues.
Video: How to leverage boards when seeking investment.
FAQ: Maximizing the relationship with your board
Q: What are some of the considerations you look at when
deciding whether you want to take a seat on the board of a startup?
What is the average size of an initial board?
Real Ventures is primarily a seed stage investor, so we are
usually the lead investor in what is typically a startup’s
first institutional round. As a result, we generally ask for a
board seat. We have a playbook for building successful ventures and
taking them from seed to Series A and beyond, so we try to be very
engaged with our founders – not just on the board level, but on a
monthly or even weekly basis. This is driven by a thesis around
adding value to companies at that early stage, which I believe
really underscores why lead investors will usually ask for board
Usually at this early stage, there are 3-5 board members which
consists of the CEO/Founder and a lead investor partner, plus
potentially another cofounder or co-investor.
Q: How should founders approach replacing board members as the
company continues to raise more money?
Usually this is dictated by the terms of subsequent rounds. If
the company is raising a Series A or Series B, the lead investor of
those rounds will often include a paragraph specifying what the
board makeup should be in order to close the investment. From the
founder’s perspective, having those terms makes the
discussion a little bit easier. This is also a well-known part of
the natural evolution of a company, so board members will expect
Q: How are observer seats usually filled?
With observer seats, there isn’t a magic formula for how
many observers can or should be on the board. When it comes to the
group dynamics of the board, you as a founder want to keep board
member and observer numbers under control. Two common ways observer
seats arise are when:
1: you have an early investor who stayed on the board after the
Series A or B and now the company is going in to a Series B or C
with new investors coming in. If the existing board member is
pretty engaged with the company they may be asked to remain
involved to act as a sounding board for the group. Having a
non-founder shareholder who knows the history and context of the
company, and who understands things from an investor standpoint, is
very valuable to board members.
2: observer seats may also be explicitly asked for from
strategic investors. For example, an enterprise software startup
may receive a term sheet from a large enterprise—this could
be a typical client that also wants to invest in the company with a
thesis around potentially acquiring it in the future. That
strategic investor will likely want to be privy to board
discussions, particularly around any potential M&A that can
impact the value of their strategic investment. However, as there
may be a conflict of interest, they may ask to observe board
meetings rather than have an official board seat.
Q: What should founders consider when they are building out
Your VC selection will determine your investor board members so,
before accepting the term sheet, ask yourself whether you are
comfortable with that individual partner becoming a board
Additionally, whenever you’re considering adding a board
member ask yourself: what value can this board member bring to the
table? Is it their domain knowledge, their operational experience
as a senior executive, or have they previously been a successful
founder in this space or with a startup using a similar business
model? Is it their current connections in the market, or is it
something else? And then ask yourself, how does that align with
your company’s goal and how can they bring value to you and
your business based on the plan that you have?
Founders should have a deliberate approach to thinking about the
board makeup and should use that to anchor and guide discussions
with their existing and incoming board members.
Q: When should a founder let their board know that they are
considering their next institutional round?
You should establish frequent update calls with your board.
Sharing monthly updates about the business performance, financials,
and where the business is generally at, will give your board a
level of awareness and knowledge such that they can anticipate when
you’ll need to raise your next round. If you are not bringing
up the discussion about fundraising when the business needs
additional funds, they will be.
If you receive a term sheet, you should think about who the
investors are and if they are a good fit for the company and its
future growth. It is important to identify if the term sheet
parameters match what you, and your investors, are aspiring to for
the next stage of your company’s growth.
Q: How have you seen founders leverage their board in the
The board can help you prepare for fundraising. They can help
you hone in on the right story and pitch and strategize around the
group of investors you want to reach out to. As a founder, you are
expected to leverage your investor board members and their networks
to get warm introductions to potential investors so don’t be
afraid to ask for that. At Real, our seed to Series A fundraising
playbook breaks it down into a clear process, highlighting the
different steps and timelines from how to create your pitch to what
is involved in scheduling those first meetings.
Having said that, ultimately a business has to sell itself, so
it’s important for startup CEOs to remember that funding the
business is not anyone’s obligation, but that the fundraising
process is ultimately their responsibility, and having a business
that is attractive to investors makes that process easier. So if
your business model is just fundamentally not working, have that
discussion with your board as soon as possible so they can help you
course correct early on.
Q: What advice can you give to founders on how to run, and
prepare for, a board meeting?
First, just to reiterate, don’t limit your interactions to
just board meetings—constantly communicate with your board.
Second, have a pre-board meeting briefing with each of your board
members in the week before. This allows you to socialize the agenda
so that no one is surprised by a topic. It also gives people an
opportunity to ask questions in advance so you are not wasting
meeting time answering questions you could have already addressed.
And then, of course, share materials at least three days before the
meeting so that everybody has time to come to the meeting
Before COVID we would recommend that our founders host an
informal pre-meeting dinner to help strengthen the group dynamic.
Hosting a virtual dinner can also be really helpful.
Q: How long should board meetings be? Is there a good time
frame that founders should aim for?
There is a common practice that is not necessarily obvious to
first time founders. Usually, we structure board meetings into two
sessions; a formal monitored session and an informal strategy
The formal session walks through all the board governance and
housekeeping items on the agenda, such as approving any stock
option grants to employees, or approving any outstanding
directors’ resolutions. This usually takes 15 – 20 minutes
max and takes place first.
The informal strategy session is like a workshop for the
business and, in addition to the board members and observers, will
usually have other attendees such as the CFO, the head of sales or
the VP of product. They will provide an update on their department
and may not stay for the full duration of the session. This session
usually is where the bulk of the time is spent and can take
anywhere between an hour and a half to four hours.
Q: Do you have any stories that you can share of instances
where a very competent founder completely mishandled their
relationship with their board and, in that case, what
It is very difficult to ruin an entire relationship,
particularly as the people around the table all have a vested
interest in your success as a founder and the success of your
business. So, it is very hard to have that relationship broken. But
it is possible to do things that play with the level of trust
between the board member and the founder.
One pitfall is setting incorrect expectations and having
surprises in the board meeting, especially if the company is
running into distress. You should disclose any material changes in
your company’s projections, operations etc. to the board in a
timely manner so it doesn’t catch them by surprise at the
A second pitfall is when a founder comes to a meeting and
presents a problem but does not make any clear recommendations or
present any concrete options or alternatives—then issues can
arise. You end up having many different opinions about the problem
and how to solve it, instead of having a clear, structured
discussion around how to solve the problem.
It also looks bad for the CEO if they are asking the board to
present solutions to a challenge that they themselves have not come
up with potential solutions for. That triggers concerns around
whether you can run the ship. The board is there to help guide you
but you’re the one with your hands on the wheel and the one
who’s ultimately responsible for managing the business. When
coming to the table with a challenge, always make sure you present
alternatives and ensure that you’ve done your homework and can
have discussions around recommendations and alternatives. Show that
you’ve done the thinking and have a clear ask around your
Originally Published by Torys, November 2020
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