In early-stage ventures it is quite common to have either a pure Investor Board or a Supervisory Board with predominantly investors in the board, at times supplemented with one or more independent board members.
Investors, just like ‘regular’ people, come in a wide range of colors with a wide range of personalities, backgrounds, skill sets, mindsets and even perspectives. Does the board member have a purely financial background or a strong operational background? Is his or her fund industry agnostic or is it very specific? Regional or worldwide? Is it a closed fund or an open-ended fund? How many portfolio companies does the board member have? Is it a first-time fund or already experienced?
Investor board members are different from independent board members because their funds will always own a (substantial minority) interest in the company and the fund (not always the board member him/herself) will therefore ultimately have a financial incentive related to the ‘well-being’ of the company. In some cases, independent board members may be rewarded with SARS/ESOP as well to align for this additional incentive.
What motivates investors in the boardroom?
There are investors in the VC landscape that have a limited perspective based on their one-sided backgrounds or are solely in it for the return on invested capital, and therefore are not able to or even choose to not bring a lot of added value to the table. It remains a question whether this is a typical investor profile or just the type of investor scale-ups should try to avoid at all costs.
I would like to make the case that investors can add value in boards. Investors are in the same boat as the company. If the venture fails, the investor needs to write off their investment and should therefore be highly incentivized to make things work. Especially when investors have a strong sector focus and invest in a particular stage, they can draw from previous experiences and make network connections. Do I root for an all-investor board? No, outside expertise is also very valuable. The mix is important. Independent board members help when they have knowledge on the sector or have the experience of going through specific crises during the scale-up journey from an organizational perspective. It is therefore always helpful for a board to yearly make a self-assessment to see whether the people currently in the board are also the right people to support management and navigate the scale-up through the upcoming crises.
What investors bring to the boardroom table.
Investor board members almost always bring at least one very relevant perspective to the table and that is that they are in the best position to judge what progress needs to be made to attract new funding. This is almost always on top of mind and of course very important for the survival of a venture. An investor board member should advise the board and management towards a successful funding round, but it cannot be the one obliged to make a follow-on investment to keep the venture ‘going concern’. Being transparent about these two different roles is important.
Can this value be added without sitting at the table? To my opinion, this takes too much time from management as they should keep their investors as committed as much as possible if it wants to raise another round with these investors. Can this value also be added as an observer? Yes, investors will sit at the table (albeit without voting rights) and get the same amount of information. However, managing observers are just as much work as appointed board members, and therefore just add complexity to the management of the board.
A scale-up should choose their investors wisely and smart investment funds should have two different personas in their funds: people that have the skills to scout the next unicorn and people that have the skills to serve on boards to support management of scale-ups to build these unicorns.
Sandra Mayr is a venture capitalist focused on societal and commercial impact. She has a lot of experience in investment banking and operations, having taken roles at ABN Amro and more. She is now an investment director at NextGen Ventures, a venture capital fund that invests in and supports entrepreneurs of digital health and medtech startups. Sandra holds supervisory board member positions at Plasmacure and Quli, has an observer role at Encapson, is on the investor board of Enpicom, Elanza, AxelaRx and Alledaags and is on the Advisory Board committee of the Rockstart AgriFood Fund.
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