Being one of the earliest investors in a startup company isn't for the faint of heart.
Serving on the board of directors of such a company requires even more fortitude but can be critical to a young company's success.
A workshop on Wednesday, July 1, laid out for about 200 virtual attendees many of the jobs of board work, starting with laying a foundation for proper governance. The workshop, titled simply "Startup Boards," was produced by North Coast Ventures, a Cleveland association of angel, or seed, investors.
"Most seed startups will fail," said Todd Federman, managing director of North Coast Ventures, kicking off the two-hour event, which was aimed at angel investors, the earliest investors in a company after a founder's friends and family.
"Even with a great board, you cannot will a company to success," he said. "That said, a great board can help create the conditions for success."
Robert Weissman, a longtime angel investor and a member of the board of directors of the Angel Capital Association, an alliance of more than 100 angel investor groups, told the audience that the startup board will help define a company's mission and hire, fire and set the compensation for the managing executive.
Beyond those key functions, the board will help define the business's product or service; approve significant contracts; worry about lawsuits and regulatory breaches; and, ultimately, make decisions about the company's exit, whether that is raising the next round of investment from a venture capital investor, selling the business or winding it down.
An angel investor is usually a high-net-worth individual who provides capital in exchange for ownership equity and who is looking for a higher rate of return than would be given by more traditional investments.
"Board service is a risk. It's a risk to you personally, it's a risks to you financially, and reputationally. It's a major obligation," Weissman said. "A single board can consume hundreds of hours a year. The (younger the company), typically the more hours you spend."
Weissman said one of the earliest decisions a startup board may need to make is whether to have a conversation with the company's founder about bringing in someone to take over the running of the business, which is not unusual when the founder is a scientist or an engineer.
That conversation might go something like this, Weissman said: "We're going to look at your performance and see if it makes sense to bring in a CEO or president who is more business-oriented around sales or business operations."
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North Coast Ventures workshop looks at how a startup's board of directors can be critical to success - Crain's Cleveland Business
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