The Business of Venture Capital: Insights from Leading Practitioners on the Art of Raising a Fund, Deal Structuring, Value Creation, and Exit Strategies, 2nd Edition

CHAPTER 21 Board Culture, Composition, and Orientation

“The Chairman's statements were guarded—guarded by enormous, labyrinthine fortifications that went on and on with such complexity and massiveness it was almost impossible to discover what in the world it was inside them he was guarding.”

—Robert Pirsig, Zen and the Art of Motorcycle Maintenance

Let us assume that a board of a venture-backed company is populated with five members: three investor representatives and two management team members. “Great boards are relatively small, generally not more than five or seven people, who understand finance and technical areas,” says Seth Rudnick of Canaan Partners.¹ While in the early stages of a company's evolution, board composition may be driven by the largest shareholders, it is critical to structure the board with expertise necessary for the company's growth. “The board should have one expert each at the minimum from sales, strategy, industry expertise, and marketing areas. This allows for a balanced contribution, and the CEO can reach different experts as needed,” says Rick Heitzmann of FirstMark Capital.

While board-member orientation is critical, it happens in a fairly ad hoc manner in most venture-backed companies. An orientation is essential to ensure that members understand their role and that they align their agenda with the overall mission. Members may have differing agendas: investors may seek exits at varying times, while the management team may have a desire to build ...