When you first incorporated as a C-corporation, probably only you and your co-founder were named as board members. You never really had official meetings or voted on anything, that you were aware of. Your attorney would have you sign some documents from time to time but you didn’t pay much attention to them. After some time and some success, you raised an equity round of funding from a VC and one thing they required was a board seat and quarterly board meetings. Now it’s time for the first board meeting and you’re having a mild panic attack because you don’t know what to expect or how to prepare. And you certainly don’t want to embarrass yourself in front of your new VC investor.
This article is just for you. I’ll describe typical participants, presentation topics, formalities, common courtesies and other administrative activities associated with board meetings. Let’s get started.
This one is obvious but realize that with your first equity funding round, it’s possible your lead investor will require the board to be made up of 1 member representing the Common shareholders (probably the company CEO), 1 representing the Preferred shareholders (probably the Partner at the VC that sponsored the recent funding activity) and 1 mutually-agreeable Independent member.
If you started out with 2-3 company founders as board members, the dynamics are about to change. And for anything that requires a majority vote of the board members (check your Bylaws or ask your attorney), you won’t be able to “slam dunk” the vote but rather will need the support of either your lead investor or the independent rep on the board. Hopefully you’re recognizing the importance of selecting the right independent rep.
Side note – Even before you raise an equity round and start getting formal about board meetings, you should seriously try to avoid having a 2-member board with only you and a co-founder. Co-founders get into conflict with each other more often than many startups realize, and sometimes over critically fundamental company issues (see related article titled “Avoiding Co-Founder Conflict“). If one of these issues requires a majority vote of the board members, you’ll be left with a 1-1 tie and be stuck in a stalemate. The company can suffer dramatically as a result. Consider a close company advisor for the third seat. (see related article titled “Selecting an Advisor“)
Side note – If you don’t already have a good independent representative on the board of directors when you close your round of funding, your new lead investor will gladly help you find one. The problem is they might not be as independent as you would like and might rather have close loyalties to the investor. If you already have a good independent representative on the board before the funding round, the investor will have a much harder time justifying the need to replace them with someone else. Six to nine months before raising your first equity round of funding, go ahead and add your own independent representative. Your existing advisors are a good place to look first.
It’s possible that you and your lead investor agreed to allow one or more of your other investors to have what’s called a “board observer” seat. These don’t come with voting rights but are allowed to participate in board meetings to get more inside scoop than whatever the company chooses to include in the monthly or quarterly updates it sends to all investors that have “Information Rights”.
The inclusion of board observers for early stage companies can get a little touchy because, from my experience, it’s very unusual for them to simply be an “observer”. That doesn’t mean their comments, questions and advice voiced during board meetings isn’t valuable. But it can change the tone and direction of a meeting. It also can create the feeling of lopsided support or opposition on an issue versus the way an actual board member vote might conclude. One option is to ask board observers to dial-in to the meeting rather than participate in person. This helps emphasize the role and expected activity of the in-person participants versus the more passive expectation of the board observer.
Side Note: I strongly recommend setting proper expectations with any board observers. This can start before even granting them the right by asking what they are hoping to accomplish by having board observer rights. In most cases they say they want to keep closer tabs on the company than they otherwise could by just getting monthly email updates. With that response you have an easy opening to make it clear that they can observe but should be very careful about influencing the conversation or accidentally distracting the conversation. That also gives you the opening to suggest conference call access instead of at-the-table.
It is common to have select co-founders or company executives participate in some or all of the board meeting. Maybe not for the very first board meeting but for subsequent meetings, it’s often beneficial to have the responsible executive present certain sections in the Functional Updates section of the presentation (more on presentation content further below).
It is common to have your attorney present. They will take notes to be used as the official Minutes of the meeting and they will be helpful for questions asked during the Board Business section of the meeting (more to come on this shortly). If you’re lucky, your attorney won’t charge for their participation in quarterly board meetings. It’s a service some startup attorneys offer at no charge. If you do get charged, you might want to ask if a paralegal that is familiar with your company’s legal matters can participate instead because their billable rate is considerably lower than your attorney (see related article titled “10 Tips for Controlling Legal Costs“). If this isn’t practical, ask your attorney if they would charge less if they simply dial-in versus participate in person. With this, they can do other work when you’re presenting information not of interest to them and highly unlikely to generate a question for them.
I only recommend having advisors at board meetings if there is a specific reason. The less active they are in actual company operations, the less valuable they are for the board meetings. If they are serving as a part time marketing or business development executive (for example), then they might add a lot of value to the meeting.
Meeting Frequency & Length
Board meetings are usually quarterly, unless there’s something like an acquisition taking place that calls for more frequent meetings. After finishing a quarter, the company needs time to close the financial books and prepare the material. This means board meetings usually happen ~3 weeks after each quarter close. As for meeting length, it varies based on situation. I find that most board meetings for early stage companies last 90-120 minutes. As the company grows and the size of the board expands from three to five, the length of the board meeting also seems to grow (3-4 hours).
Most companies choose to walk through a structured presentation. But that doesn’t mean the board meeting should be a one-way dump of information from company to board members. The more interaction you have in the meeting the better. Brad Feld has an interesting idea that involves no formal presentation but rather only dialog. You can read more about that here. I’ve never experienced anything like this and don’t know how practical it is but understand and agree with the spirit of the idea.
Another way to think about ensuring a reasonable level of interaction is to strive for a 65/35 mix of conversation. In other words, the company executives consume 65% of the board meeting time with their presentation and answers to questions. The board members and other meeting participants get the other 35%. If you end up with 85 slides for your 90 minute board presentation, you’re already in trouble and need to re-calibrate.
Official Board Business
There will always be some official business to be handled by the board. This is usually done either as the very first or the very last topic on the agenda. The reason is because only official board members and the company attorney should be present (maybe board observers too but think about that first) and it is practical to ask other participants (ie – execs that aren’t on the board) to either delay their joining the meeting or to depart just before the Official Board Business section. Examples of Official Board Business are as follows:
- Approving the prior board meeting’s Minutes
- It’s best to circulate the Minutes 48 hours before the meeting so the board members can review ahead of time for accuracy and simply give verbal approval during the meeting
- Approving stock option grants for newly hired employees or advisors (or additional stock options granted to select key employees) (see related article titled “Compensating Your First Employees When You’re Cash Poor“)
- Reviewing the current capitalization table and remaining available stock in the option pool to grant
- In order to show the cap table ledger on a slide, it can be simplified somewhat by grouping advisors and non-executive employees together. Angel investors from a pre-seed or seed round can probably also be grouped together. And you’ll want to show the option pool. Usually the founders and key executives are listed individually, as are any major investors. You can also just show the fully-diluted section of the cap table.
- A second slide can be used to break down the option pool. A pie chart is convenient and should have sections for issued versus available. If you want to further impress your board members, break the issued section into issued-vested versus issued-unvested.
- Discussing or approving changes to CEO or other executive’s compensation
- Approving the results of a formal company valuation (ie – a 409A) and/or approving a new Common share price (whether resulting from a formal valuation or otherwise)
- Read related article titled “Pricing Your Stock in the Early Days“
- Approving a new round of fundraising – both the key terms and the total amount authorized
- Discussing or approving the sale of the company (see my related articles on M&A here)
- Discussing or approving an acquisition of another company
In this section, I like to use one slide each to cover each of the listed further below. Just be careful not to drift into a full conversation on a topic you have in a future section of the presentation and with all of the supporting information. Instead, just set the tone for the rest of the meeting and subsequent supporting information that follows. This section should be mostly to set the stage and you might have to make that clear first.
- Current org chart
- Hiring plan – perhaps just key positions rather than every position being recruited
- Financial – P&L and balance sheet for past quarter (1 slide each). Show deviations from the official plan and add some comments, where needed.
- Many companies also show their cash fume date and it’s sometimes calculated two ways – based on achieving the sales forecast and with no new revenue (for subscription companies)
- Operational – whatever 3-5 key metrics you track and message to the board as significant operational metrics (ie – a SaaS company might present MRR, CAC, churn, # new customers and select conversion rates). Most operation metrics should be graphed as a trend over time and with mention of the target for each.
- Select from the key financial and operational results presented in the prior section and project them through the end of the year or the next 4 quarters (depending on your planning horizon).
- For early stage companies, it is common to show the “cash fume” date (the date you expect to run out of cash). Sometimes two dates are presented: forecasted (including expected new business) and conservative (assuming no new customers
This section is an opportunity to showcase your co-founders or other executive team members. Divide up this section into however many sub-sections make sense for your organizational structure (ie – sales and marketing, product, operations). But please don’t crawl through every sub-function or detail of your business and don’t get too tactical. Keep the discussion at “board level”.
You might have a few other things to cover before ending the meeting or going into the Official Board Business section.
- Help needed – 1 slide listing specific help requested of the other board members. In fact, your board meetings should not just be a one-way presentation by the CEO but rather should involve plenty of discussion and collaboration. Make sure to budget time for this interaction and to specifically identify topics where your Board members can be most helpful to you.
- Upcoming board meetings – a listing of the next board meeting(s) already scheduled so the participants can ensure their calendars are marked
- Non-traditional topics – perhaps a short planning session or other topic requested in advance by you or a board member, for some particular reason (setting a new financial plan, M&A discussion, etc)
Most early stage company board meetings are informal. That doesn’t suggest lack of preparation but rather refers to the conduct of the meeting itself. The one exception is the Official Board Business section. Some investors or board members prefer to be more formal for this section to help make it clear if a particular item was approved or rejected. Taking this to an extreme, you could follow some parliamentary procedure like Robert’s Rules of Order, which is the gold standard for making motions, allowing discussion and seeking votes. But very few early stage companies take it that far. Here’s an easy substitute to consider, using stock option grant approval as the example:
- (CEO) “Listed here are the stock option grants we need approved for recent hires. All are within our normal guidelines for the stated positions.” (the CEO might add commentary about certain option grants, if needed)
- (CEO) “Is there any discussion needed on this?” (pause to see if anyone has questions or comments)
- (CEO) “Is anyone opposed?” (pause)
- (CEO) “OK, the stock option grants are approved.”
These formalities are only needed for items that require board approval. In other words, not items just being reviewed or discussed (ie – showing the current cap table or mentioning the percentage of the stock option pool still available for grant).
Another important formality is capturing official Minutes of the board meeting. Your attorney can best advice how to do that and if they attend the board meeting, they will do it for you. There is a trick to capturing certain discussion topics but without too much detail. Usually the official Minutes of each board meeting are approved and logged for future due diligence by investors or acquirers.
- Advance Material – Send the presentation deck and prior meeting meetings to the board participants at least 48 hours prior to the meeting so they have a chance to review and digest. It will help the meeting be more efficient and if you’re lucky you’ll get some quick feedback prior to the board meeting and can use that to make some changes or better prepare.
- Time Management – If you schedule the meeting for 90 minutes, try to finish on time and realize there will be a lot of dialog during the meeting. Your presentation material should only consume about 50% of the board meeting timeline (if it were presented without interruption). You MUST allow a lot of time for dialog, first because it’s necessary and second because it’s the most valuable part of the meeting for all participants (company and board members). I can’t tell you how many board meetings I’ve been in where 25% of the material gets presented in rushed fashion in the last 15 minutes because of too much material and/or poor time management.
- Level of Detail – It is very common for early stage company execs (actually, most company execs) to present at a level that is too detailed for the board members. I’m not suggesting that you abstract everything to such a high level that it’s not meaningful, but at least give the final draft version of a board presentation deck a review and ask yourself if the content is at the right level for the discussion you want to have.
- Food and Drink – Depending on the time of day for your meeting, have an assortment of snacks and drinks available for the participants.
The CEO Runs the Company
One final thought. The purpose of having board members is Oversight, not Operational Management. It’s true that for many early stage companies with first-time founders, the board members also serve as advisors. But as the company grows or if the company has an experienced management team, the role of the board should be Oversight. My friend Joel Trammell describes this well in his article titled “Creating the High-Performance Board”.
The way you interact with your board members and the material you decide to put in front of them should help support this. You run the company, not the board. If a board member has a strong opinion and appears to be giving direction rather than advice, I recommend acknowledging their recommendation in such a way that makes it clear you’ve heard them but also makes it clear that you’re running the company. An example might be “That’s an interesting idea. I will definitely take it into consideration.” or “I’m not sure we will go that direction but I will definitely think about it some more.” If your board members lose confidence in your ability to run the company, they can make an effort to replace you. Otherwise, they need to let you run the company.