Dear SaaStr: Why Do Venture Capitalists take Board Seats?
It took me a while to figure this out.
When I started writing venture (vs. angel) checks, the last thing I wanted to do was take another Bored (sic) Seat.
As a CEO/founder, I saw board meetings as important accountability sessions, for me and especially the team, but beyond that, viewed them as a huge time sink. Very few of my VCs as a founder ever added any “value” that I could see.
Then, as a founder-turned-investor, I viewed my job as helping. And getting out of the way. Not being a critic at a board meeting. And certainly not being anyone’s “boss”.
And so I felt for over a year. Every board meeting as an investor just felt like a tax on my time. I even tried to structure deals so I wouldn’t have to be the one on the board, so my co-investor would be instead.
And then … I saw the ramifications:
- A start-up that has raised > $1m needs external accountability. Companies without a financial investor on the board more often I’d hoped and expected do … odd things … with the money. And in my experience investing now for almost a decade, they perform worse.
- Investing is kind of scary. There need to be controls. If I am giving you $25k personally, c’est la vie. But if I am giving you $2,500,000 … there’s a lot of trust in that. You know what solidifies trust? A board seat. Belt and suspenders in theory, perhaps. But really — it’s a control. Money needs controls. In any organization. Without them, even best case, lots of stress ensues unless the company is minting cash.
- One investor has to carry the weight of the “next round”. There has to be one investor that carries the weight. That gets the next round done. That is the social proof for the next round (beyond the company itself). And that leverages her social capital to get it done. Companies without a strong lead investor and board member have a much harder time getting the next round done on good terms, and in the right way.
- A “bad” board member can cause some real harm. Bad board members can do harm. A bad lead board member can make recruiting, fundraising, and many other things much harder. So it’s worth stepping up in those situations.
Fast forward today, I have my own $150m+ VC funds. Now I’m responsible for the whole thing. Not just a small piece of someone else’s fund.
This is Why We Have Boards of DIrectors and CFOs pic.twitter.com/jpt6aCKvKi
— Jason ✨Be Kind✨ Lemkin 🇮🇱 (@jasonlk) January 6, 2023
My stress level has gone up as a result (a good thing). And you know how I sleep at night?
A board seat.
Just one. I don’t need control. But I do need .. controls.
(note: an updated SaaStr Classic answer)