The Handbook of Board Governance, 3rd Edition

71Advice for Current and Prospective Directors of Start-ups and Early-stage Companies

Steve Chan, BA, MA, MBA

Experienced Corporate Executive, Corporate Director, and Trusted Advisor Boards and CEOs

Adam T. Humann, BA, JD

Partner of Kirkland & Ellis LLP

Serving on the board of a start-up or early-stage company can be an exciting opportunity, but it is not for everyone. Even seasoned corporate directors and executives can struggle with the unique challenges posed by such companies, which are often plagued by inexperienced boards and management teams, underdeveloped governance and oversight structures, and few institutional shareholders to serve as a check on management. These challenges can make the uphill task of steering a start-up to success even more difficult. But experienced leadership can also be the difference between success and failure; with appropriate diligence and the right approach to board service, experienced directors can meaningfully increase a start-up’s likelihood of success.

Harvard Business School Professor Tom Eisenmann has found that more than two-thirds of start-ups fail to provide positive returns to investors.¹ The National Venture Capital Association (NVCA) findings are similar: 40 percent of venture-backed companies fail entirely, 40 percent yield moderate returns, and only 20 percent exceed moderate returns. Notwithstanding these results, in recent years, prospective start-ups benefited from ready access to venture capital (VC). Following the ...