Oost NL invests via multiple funds in numerous stat-ups and scale-ups that are primarily based in the province of Gelderland and Overijssel. Furthermore Oost NL invests fund-to-fund in Venture Capital firms across the Netherlands. Oost NL is funded by the provinces of Gelderland, Overijssel and regional knowledge institutions. With a total assets under management of approximately € 550m Oost NL is perceived to see a significant part of the Dutch Venture Capital ecosystem at work, primarily in the Eastern part of the Netherlands. This article addresses the board related matters with respect to the timing of supervisory board installation, supervisory board diversity and the impact on the effectiveness.
Timing of supervisory board
Oost NL’s main funds can only co-invest with a private investor at (minimum) the same terms at the same time. One of the recurring discussion topics during the financing process is whether or not to install a supervisory board at the start of the investment. In our experience a supervisory board only adds value in addition to the regular shareholder meeting if it has an active involvement in the composition of the strategy of the company and acts as a sparring partner of the board/management in a trusted environment. At first hand entrepreneurs are often hesitant to install a supervisory board because this creates an additional formal layer to the meeting structure which is perceived to be time-consuming and not adding value in their opinion.
Although I can relate to this argument, I encounter more evidence in our portfolio that an experienced supervisory board can add tremendous value. Research of Gompers and Xuan underlines this as they mentioned that well-connected venture capital boards can add value by supporting portfolio companies in the hiring process and utilization of the network of a board member from a Venture Capitalist. However further work needs to be done as to how effective a supervisory board is in the early days of a start-up.
Supervisory Board Diversity
Oost NL’s investment policy strives for more diversity via the well-known “Fundright-initiative”. This initiative strives for more diverse management teams, HR policies of portfolio companies and more diverse venture capital firms. Based on findings of Gompers and Kovvali, the added value of a diverse team of investment partners is significant in helping the portfolio company with a more creative mindset to overcome development stages rather than at the level of deal selection. With respect to diversity and Fundright, I noticed a change in the recent past of the mindset of entrepreneurs, where the perceived added value of a diversity clause in the transaction documentation was perceived limited, a recent CEO of a portfolio company made this article reciprocal as she insisted to strive for a diverse captable composition as well.
It is difficult to conclude that the installation of a supervisory board helps a portfolio company direct at the start/origination. However, based on the experiences of the Oost NL portfolio companies, the lessons learned from the ScaleUpBoard course and used scientific sources a significant improvement on (supervisory) board level effectiveness can be made when stakeholders perceive the added value of a timely installation of a supervisory board of a well-known Venture Capitalist and strive for more (board) diversity.
- Gompers and Xuan (2018), More than Money: Venture Capitalists on Boards, The Journal of Law, Economics, and Organization.
- Technological Readiness Levels <3/4
- Gompers and Kovvali (2018), The Other Diversity Dividend, Harvard Business Review July/August 2018.
About Thomas Hensel
Thomas is a ScaleUpBoard Class 12 alumni and currently the Senior Investment Manager at the OostNL. Thomas grew up in the East of The Netherlands and is passionate about helping entrepreneurs realize their growth ambitions. Previously he worked with MKB Fonds and Axivate Capital.
Get the latest scoop on scaling, updates from the scale-ups in our community, and first access to our events.