Boards at the earliest stages of a company

Welcome back to Above Board! Today we’re honored to be joined by Underscore VC General Partner Lily Lyman (who was recently called “Boston’s new power venture capitalist” and featured in Business Insider). As an early stage investor, Lily and Underscore have lots of experience helping companies put together their first board. In this edition, we dive into their approach to founder-investor communication.

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AB: Thanks so much for joining us, Lily. And congratulations on the well-deserved recent feature in Business Insider. How do you and Underscore think about board seats, board responsibilities, and what role you can play on them?

LL: I'd say it's evolved over the last couple of years, but I think fundamentally we care most about two things. One is: can you play a valuable role as a thought partner, resource, coach, and network for the founders to help set the company up for success? 

The second bucket is, we have a fiduciary responsibility to our LPs to take care of the capital that has been invested in us. And therefore things like good governance, particularly as companies grow up, matters. Can we be good stewards of capital and make sure we are shepherding the company as it continues to evolve in its journey? If we're doing our job right, along the way we're bringing on other sophisticated investors and maybe independent board members around the table.

As for formal board seats, I'd say we take a board seat at seed stage half the time. I think for us, there are reasons sometimes where it matters to have the formal board seat, but what matters more is having that relationship so that you can be a real partner for the founder.

AB: By when should a company make sure they have a board formed? Even if the board hasn’t been formed yet, is there a way for a company to prepare for future board meetings?

LL: We don't always see a board formally formed at seed stage, and usually not at pre-seed. Our involvement at pre-seed is still very hands on, but it's not in a formal board meeting every quarter. We normally have monthly check-ins, as well as countless ad hoc calls/texts as they are helpful to the founder.

Same thing at seed stage. These stage companies sometimes have board meetings or at least the simulation of a board meeting. Even if we've done a priced round and the board is the two co-founders and a third member, sometimes really thoughtful founders will still have a meeting that is basically a board meeting, but not officially.

Usually we do it quarterly or once every six weeks. I think there is great value to the discipline of putting a stake in the ground about our plan, what we are going to do, and which strategic topics we want input on. It is a helpful practice to have an organized time and place to review that stuff and dive in with the co-founders, whether it's in a formal board setting or not. So we definitely encourage that.

AB: How do you think about transitioning off board seats?

LL: Our unique point of view is that we do not necessarily need to stay on the board forever. We have had an instance — and we'll probably do more of this in the future — where actually we transitioned our board seat over to a member of our Core Community, which is our advisor network.

In this case, the person is just so well suited for this board. This company is late-stage and pre-IPO. It is going through the process of figuring out that next chapter of growth and getting IPO-ready. The person who took over the board seat is an extremely experienced operator who has taken a company public and then got it acquired by Salesforce. This person knows how to do this stage of company growth. 

Whereas, we're very early-stage investors. We're great at getting people to product market fit. We're great at getting them their Series A. We can help with some building beyond that, but that's not necessarily our deepest expertise. So, we're not dogmatic about it. 

AB: As the board grows, do you try to keep meeting in person?

LL: I still think in-person meetings are great. Sometimes we'll do a hybrid, where a few of us (all based in the same city) will be in a room and some people will be on screen. For example, tomorrow I have a board meeting where all the people based in Boston are going to be together, but we have two people on the West coast who will Zoom in. 

The other thing I'm seeing some people do is where you do some of the board meetings in person and some remote, where you rotate where the in-person ones are held, such as one on each coast. For example, a year’s board meetings for this company might have two on zoom, one in person in Boston, and one in California.

AB: Do you rather hear news - whether good or bad - during board meetings or in real time as it happens? Why?

LL: I much prefer to receive it in real-time if it's positive news. It's kind of fun to hear in a board meeting because it can be celebratory (though real-time is always best). We once had a company sign a contract for a huge customer that happened to align with the timing of the day of the board meeting. So that was fun. 

But I think especially for bad news, you don't want to shock people. Sharing bad news in the board meeting puts people on the spot. People are different types of learners and different types of responders. Some people need a second to process and think before they respond. And so if you have bad news and you want to have a conversation about it, I think it's always better to share this news when it happens, and then have a future discussion around it. That way people can prepare. 

Also, sharing the news early can help give the founder more control over the conversations. If you have bad news such as ‘we totally whiffed our quarter,’ you want to put that in the board meeting pre-read and maybe even have a conversation with some of your board members about it before you send out the pre-read.

You might approach it like this: “As a heads-up, here's what happened this quarter. I wanted to give you some color before the board meeting. As you'll see in the materials, here's the conversation I want to have in the meeting.” Your goal is to turn this into a productive, collaborative, let's-lock-arms-and-fix-this conversation. But if you drop that news in the board meeting, then people may have a knee-jerk emotional reaction.

So I'm always a fan of sharing news and discussing it in real time. Also, I think it’s important to keep in mind that your board members want to be helpful. They're involved because they want to see you be successful.

Thanks for reading. We’ll be back again with Lily next week to discuss how CEO’s can prepare to run their first board meeting. Until then, a reminder to share this with friends and to reply with any feedback!