So a little ways back a bit of a Board of Directors soap opera broke out. The Information broke the story, with Sequoua asking its ex-active partner and leader Mike Moritz to step off the board of key portfolio company Klarna in favor of an active partner, Matthew Miller.
What exactly happened we may never know, but clearly it didn’t sit well with the CEO of Klarna or Moritz. WIthin a few days, Miller was off the board himself, and Moritz stayed put.
Now I haven’t been through this exact scenario myself, but I’ve been through and observed board-level investor changes multiple times over the years.
The most common scenario is when you raise growth rounds, and in essence, to make room for a board seat for growth investors, seed investors are asked to give up their seat(s). Another is like the Sequoia example above, when a VC partner moves on from an active role or from the fund.
A few learnings, and then some action items:
- First, of course, check the documents. Do you have the right to remove a VC from the board? Even if you do, who has the right to replace them? Be wary of what you ask for 😉
- Second, in general, think about proportionality. A venture-backed board generally roughly represents its cap table. It doesn’t have to, but this is the general cadence of things. So asking a VC that now owns 4% of the company after not participating in later rounds? Not a tough ask in many ways. Asking someone with 15%+ to leave the board? Tougher.
- Third, take a careful read on egos. How important is it to be on your board to that VC? Some VCs take board seats very seriously, as part of their ego. Look at their LinkedIn or web bio to get a sense. Many see it as very important for their prestige and network to stay on the board of their top, top investments. But many others don’t care. You gotta get a subtle read here.
- Finally, understand who they represent in the investor base. Sometimes, one of your investors may “speak” for others on the cap table, e.g., later stage investors that are their close partners. If so, the VC may really punch above their weight on the cap table. They may represent more of the investor base than just their own ownership.
Ok now, if you’re really clear it’s time to get a VC off your board, a few bits of actionable advice:
- #1: Slow it down. Slow it down. Whatever happened at Klarna and Sequoia above — it happened too fast. Generally speaking, board transitions take months at a minimum. Because at a minimum, they tend to stretch out over multiple board meetings.
- #2: Start talking about it early, with respect. “Jason, I know a lot of seed investors like to transition off the board at some point. How do you think about that?” That asked respectfully, in-person? A great convo. Asked in a random email? Less OK. Asked properly, without games, they may even volunteer and invent the idea themselves.
- #3. Don’t force it, at least not unless you really have to. See, Klarna above. It’s 100x better for one of your top VCs, often your earliest champion if it’s your seed VC, to come to the conclusion themselves. Force it? You’ll often “win”. But you may lose too. You may lose your top champion. You may break the relationship here without intending to.
- #4. Tie it to the Next Round. This is often the easiest and most elegant solution. You can start this conversation early, and then it’s only natural when and if you raise another round, that the board is reconstituted. There may still be a little bruised ego, but in essence “blaming” the new round for the boot reboot is an easy fall guy, if you need one. Everyone in venture gets this, even if they don’t always like it.
- #5. Ask When They Would Be Comfortable Going “Emeritus”. Sometimes, a seed VC is fine leaving the board once the company is stable and has a strong board — but sometimes gets nervous until then. That’s my personal view, for example. Just ask. Ask when the company would be “mature enough for them to want to leave the board”. The answer may be — the answer you need. It may even be the right answer all around.
A related post here:
(door image from here)
