Many VCs request the addition of an independent board member. In fact, it has become an almost standard item in term sheets these days: One (or more) VC board member, one (or more) founder board member, and one (or more) independent. But does an independent board member provide value? Should companies insist on adding them? Who is the best candidate for your startup?
Here are some pros and cons to consider while pondering these questions:
Should I bring on an independent board member?
Like everything in life, it depends. In general, having a board that consists of only investors and founders can prove to be problematic. Although the fiduciary duty enforces board members to focus only on the interest of the company, the reality is that both founders and investors have their own agenda. Not only that, the relationship between the investors and the founders is not always “pure” and having someone that is neutral can be a real benefit.
On the other hand, having a board member that is not active, and that does not add value, can also be a burden.
The ideal situation would therefore be to bring a value-adding, positive, independent board member if you can manage it, and if you can’t, then you may want to reconsider bringing one at all.
Who is the right board member for my company?
Choosing the best and most relevant person isn’t easy. Most companies make the mistake of looking for an “industry expert” which in most cases translates to “a person with relevant knowledge and a perfect resume”, the rationale being that someone like that can truly help the company around strategy and go-to-market, and may even be able to “open doors”. In reality, however, the best independent board members are not industry experts.
Just to be clear, it does make sense to bring someone with some industry background. Having a semiconductor expert on the board of an internet company, for example, doesn’t make sense. But the leading factor should be the relationship between the board member and the CEO.
The best independent board members are trusted advisors of the CEO. These are people who bring real value by supporting the company’s leadership, helping them grow and evolve. It’s about empowering the leadership and not only about market understanding and analysis.
Many years ago I was on a board of a SaaS company that brought in an independent board member who was a world-class expert in Inside Sales. The logic was that an inside sales expert would really be able to guide the company going forward. Two years later the company pivoted away from inside sales, and the person we brought in became a lot less relevant. So the takeaway is that an expert can be a great consultant but not necessarily the most suitable board member.
And that’s basically the underlying insight:
Adding an independent board member can be a very valuable move move, but only if that person brings relevant long-term support and empowerment to the company.