With Stephen Millard, Chief Platform Officer, Notion Capital.

How to run a high-performing VC-backed Board

With Stephen Millard, Chief Platform Officer, Notion Capital.

Setting the scene

For a venture-backed tech company, the board ensures alignment between the investors and the leadership team. The challenge for founders and CEOs is not just to “tick the box” but to ensure the board is effective, productive and high performing.

“Every company has to have a board of directors and it has tremendous power and authority,” says Maurice Helfgott. “So you can tick the box and gain no value or you can choose to benefit from it enormously.”

In this article we will be sharing our collective thoughts on constructing, managing and evolving a board to help ensure that it is a rewarding experience for all involved.

Thank you for the contributions and guidance from the Notion Capital Partners: Stephen Chandler, Andy Leaver, Ian Milbourn, Patrick Norris, Itxaso Del Palacio, Chris Tottman and Jos White. Also a special thanks to three current and former Notion Capital company Chairs: David Eldridge, Maurice Helfgott and Alan Millard.

The essence of a startup board

In the world of venture capital the board exists to ensure accountability and transparency between the people running the company, i.e. the leadership team, and the people who fund the company, i.e. the venture capitalists and the private investors.

The leadership team should expect guidance, validation and support from their investors, many of whom sit on multiple boards and have extensive experience, while the investors should expect to be reassured the business is being well managed, is executing on the plan and is learning from its mistakes. This two tier framework is well proven.

Two tier decision making systems, with executive and non-executive chambers are entrenched in society; for example The House of Representatives and The Senate in the US and The House of Commons and The House of Lords in the UK.  The set up for a tech company is no different, the Senior Leadership Team is effectively the lower house, responsible for planning and running the business, the Board is the upper house, providing governance and oversight. - Alan Millard, Chairman, DueDil and Principal, The Table Group

It is important that the leadership team does not see just the board as an overhead, but recognises the importance of the governance, guidance and confidence a good board can offer. On the other hand, it is important that the investors on the board are getting reassurance that the business is being run well, that they understand the risks and that they’re being given  unvarnished facts - the good and bad - about the current performance and plans for the future.

I worry that a lot of management just see the board as a disaster avoidance and are trying to come out unscathed. - David Eldridge, Chairman

Ultimately, it’s all about alignment and respect.  

“The leadership team are the operators of the business and make all the decisions,” says Alan. “But the investors and the non-execs provide the governance, the ratification and ultimately the money to help the leaders operate the business. So it has to be aligned, and that’s the role of the board.”

“The board and management have to have a deep respect for each other and their mutual roles and when it is mutual it works well,” says Maurice. “If management thinks of the board as being difficult and an overhead, that gets in the way, then it ends badly. And conversely if the board thinks they run the business, rather than challenging and supporting the team, it ends up badly.”

Questions many founders ask

The board related questions we are asked by founders typically fall into the following three:

  1. Who should be on the board?
  2. How often should we meet?
  3. What information is required and when should it be distributed?

Two questions we aren’t asked quite as often, but are incredibly important:

4. When should I bring in a Chairperson?

5. How should the board evolve?

One we rarely encounter, but is one we often hear discussed about our Senior Leadership Teams, is possibly the most important:

6. “How can I build a high performing board?”

More on this later.

  1. Who should be on the board?

Alongside the question of who should be on the board is also the question, “how many?”. The two are obviously interlinked.

Let’s start with the number first, which is typically a minimum of 5 up to a maximum of 8, with a couple of caveats.

So, at Series A that’s two or three executives, two or three non-executives.  The executives will be the CEO and one or two others, one of whom will often be a co-founder. They need to be someone who is deeply familiar with and can represent “the numbers,” the financial performance, KPIs and metrics, so that second person will often be the most senior finance executive.

The two or three non-executives will typically include two investor directors and one independent advisor or NED. And at this early stage the CEO acts as Chairperson.

Stephen Chandler, Managing Partner at Notion Capital summarises it well: “What I want on the board at Series A is a maximum of two investors, two founders / executives and an independent who has ideally invested as a private angel investor. And then to add a CFO at Series B+, so taking us to six.”

As the business grows that number can increase up to a maximum of 8 people, which is in fact an ideal number for a high performing team.

The optimum number for any team, as we know, is eight people. There will be pressure to go beyond this number, but if you can keep it to eight, you should. - Alan Millard

Others are more sanguine.

“I tend to think it’s two founders, ourselves, possibly the previous investor(s) & one independent, no minimum or maximum,” says Chris Tottman. “It’s more a question of finding a high performing balance, as well as those who have rights. It’s good to make room for independents as well.”

Maurice Helfgott takes a similar view and looks for a bespoke solution for every company he works. “In venture, everyone who signs a term sheet wants a seat on the board and doesn't want to give that up until they absolutely have to. If people are behaving in a constructive way, I would rather have the investors with the control rights on the board. So, if you have round after round, you can end up with quite a few people on the board, 4 to 6 investment directors on the board, plus observers and independents.”

A common thread across the Notion team was the importance of the independent board adviser, thinking carefully about who this is and the role they play. “A lot of founders are not mirrored or complemented on the board,” says Andy Leaver. “So a deeply technical founder may need a deeply technical former CEO on the board, alongside the VCs and investors who will invariably be less tech literate.” The non-exec role is one that should be taken seriously and that evolves as the challenges of the business grow.

At Series B and beyond, the numbers may well grow to 8 people:

For example, 2-3 Executives, 2-3 Investment Directors, one NED and the addition of a chairperson.

More on that later.

2. How often should we meet?

During 2020, amidst the uncertainty of the pandemic, most boards have been meeting more frequently than would typically be the case.

The consensus on this topic is fairly standard.

8-10 board meetings each year, of which, half are longer and strategic in nature and half are shorter and are performance updates.

In an ideal world the longer sessions are physical, lasting three hours or more, and are often associated with some additional social activities such as a lunch or a dinner. One session will typically be to present the plan for the year ahead, and then others focus on topics such as product strategy, organisational development, brand or category design, M&A etc.

At these longer sessions it is common to have members of the senior management (Chief Technology Officer, Chief Marketing Officer, etc) in attendance for the strategic part (which should always be done first) and then to depart before the formal component of the meeting.

The shorter sessions may be 60-90 minutes long and can take place online, or even better on the phone, to ensure things move along briskly. No other senior team members in attendance.

3. What information is required and when should it be distributed?

Two messages that come across loud and clear are the importance of consistency in the board pack and the fact that the pack should be distributed at least 48 hours before the meeting.

While there is a reasonably standard approach to the board content, more on that below, what matters more is that once finalised upon the format remains the same.

That consistency is important in the board pack to ensure that it is the same every time, reducing the burden on both the contributors to the pack and on the board members, so they can relax into the meeting knowing they have received the right information and knowing what to expect.

Alan Millard reinforced the point of constantly reminding the board of what they can expect every time, by saying, "here's our plan, here's how we are executing, here’s how we have performed and here are the risks." By doing this, executives build up confidence and establish a routine people can rely on. Bear in mind your non-exec board members will most likely be sitting on multiple boards, so be repetitive (this is the plan, this is how we are executing, this is how we have performed, these are the risks) and consistent (same format content delivered in advance and the same agenda) and make their lives easier. They will love you for it.

What’s in the board pack itself?

Clearly this can vary, but again this was remarkably consistent across the Notion Family. The first thing to bear in mind is that the pack does not have to be a set of slides. It can be a written document, which some prefer due to the ability for greater context and nuance in the written word. NB the content for the strategic sessions is more often a slide deck, presented by the manager of that function, possibly complemented with a written memo.

The short one...

  • The CEO Overview (15 minutes)
  • Where we are winning and losing
  • Challenges, risks and asks
  • Performance dashboard and KPIs (30 minutes)
  • This section covers how you’ve performed
  • Showing the funnel and core performance metrics
  • High level P&L & cash flow
  • One page on each function, prepared by the leader of that team (30 minutes)
  • This section is forward looking, i.e. this is the plan
  • Five-six bullets with a paragraph on each
  • At least one bullet must be the biggest risk or challenge that function faces
  • More detailed financial analysis in an appendix
  • Board Formalities, Confidential Matters, AOB and Close (15 minutes)

The long one…

  • The CEO Overview (15 minutes)
  • Strategic topic 1 (60 minutes) 
  • Strategic topic 2 (60 minutes) 
  • KPIs and Reporting (15 minutes) 
  • Functional Performance (15 minutes) 
  • Board formalities (15 minutes)

For these longer sessions move the strategic sessions to the front of the meeting, after a short scene setting CEO update. This ensures that these important topics are given the time and attention they deserve.

Within these areas, and bearing in mind the simple mantra “this is the plan, this is how we are performing and this is how we are executing,” create a format and structure that works for you and then keep it consistent.

Alan Millard is unequivocal on this, “Once you've established the order, which frankly is not that important, just keep it the same. Because one of the hidden barriers or boards is the assumption that everyone's up to speed and knows what's going on. Most investors and Ned's are on multiple boards. They're picking up the environment and the situation of this particular business for this board meeting. And context switching is huge.”

One last piece of advice here is to focus on getting that all important alignment before the meeting, so everyone starts on the same page. David Eldridge: “You need to get people’s agendas on the table; make sure it has all surfaced in advance.”

4. When should I hire a Chairperson?

Typically for early-stage venture-funded companies, the makeup of the board is driven by the demands of their investors, and the question comes up from the start, “do I actually need a chairperson at all?”

Stephen Chandler, Managing Partner at Notion, says that while not mandatory, there are points when it becomes incredibly powerful:

  • If there are multiple VCs around the table with contrarian views 
  • If there are multiple investors who are not on the board but need to be kept informed 
  • A first-time CEO managing fast growth 
  • A company going through turbulent times

There is a common feeling among the Notion team that with a Chairperson in place they simply feel more at ease, the board runs well and the chair is working hard to ensure alignment between all the stakeholders: exec and non-exec.

“We do not always advocate the importance of appointing a chairperson at an early stage, however when needed, we have seen the very powerful impact it can make,” Stephen Chandler.

They can also keep the balance in the meeting: quieting down the loud voices, ensuring the meeting runs on time, ensuring important decisions are robustly discussed, made and committed to and holding everyone accountable.

“I enjoy having a good chairman,” says Jos White, “such as David Eldridge at Idio or Preben Damgaard at Dixa. I feel I’m in good hands.  You have the information. People are on time. You work through the topics and have a mechanism for taking actions.”

5. When and how should I evolve or level up my board?

The first point is that this is a “when and how” question not an “if” question; founders must level up their board, in the same way as they level up their leadership teams. Unfortunately, many do not.

So when?

When circumstances demand it the CEO and/or the Chairperson should be taking action to level up non-execs as the needs of the company change.

Every funding round for a venture-backed business is the best time to make changes to the board of directors and this should be signalled well in advance, ideally at the round before, perhaps with an agreed ownership stake as a trigger.

This is an ideal role for the chairperson and should not be left to chance.

“People can feel they have an enshrined right to be on the board,” says Jos White. “One of the best ways to handle this is to address it far ahead of time by agreeing principles and setting targets. So no more than 8 people. No investors with less than 10%.” These  kinds of changes are harder to do when the need arises, but far easier to do in advance.

6. How can I build a high performing board?

Last but not least, how do I ensure the board performs well, assuming it is well run, the content is good and consistent, and everyone is on the same page.

When we take a step back and think about how our companies build high performing teams, it follows a similar format, and why should that be different for the board.

  1. It starts with establishing trust; vulnerable trust

Trust comes partly through the consistency we mentioned previously but deep down it comes from a willingness for the executive founders to be vulnerable, not just sharing the good news, but airing the bad too, being prepared to own up to mistakes, gaps in knowledge or a lack of experience. The executives must be prepared to show, as Alan Millard put it so eloquently, “They need to be comfortable showing they are 80% brilliant and 20% crap!” That degree of humility will bring the rest of the board along with the executives. If not, perhaps you have the wrong people on the board.

It comes down to every executive and senior leader presenting to the board being prepared to highlight weaknesses, problems and challenges.

And it comes down to the executive board members going first, being vulnerable, showing weakness and asking for help.

Alongside this, spend time with NEDs and Board members outside the board meeting. Have a social aspect to your board meetings and get to know them as people not investors. Get them involved with the business. If they have a specific expertise that is valuable to you, get them working with you or your team to help bring their expertise to bear.

Trust is two ways, but in this instance it starts with the executive team.

2. Encourage passionate unfiltered debate

If topics are important, there are differences of opinion and the stakes are high, then ensure people are heard. Bring out all the opinions and experiences. Dig into what that experience is relevant.

3. Get commitment and make decisions

Once the debate has been had, make decisions. Some people may have to disagree and commit. That’s the job of the board.

4. Hold each other accountable

Encourage board members to hold other board members accountable. Not just the CEO or the Chair but investor to investor. NED to NED.

5. Deliver results

Do all these things and the board will make a difference and contribute massively to the success of the business.

Some More Resources and Reading    


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