Comments on: Angel Investing – Start-up Governance

By: Lisa Hjorten

Lisa Hjorten — Thu, 19 Nov 2009 01:24:32 +0000

I also think that most CEO’s naively think that their board cannot or will not fire them. Many have learned the hard way that all it takes is a majority vote, that can occur at any time, and without good reason. It doesn’t matter if the CEO has the majority of the common stock. The voting rights of that class rarely come in to play. Food for thought.

By: Neil Lewis

Neil Lewis — Wed, 18 Nov 2009 09:28:23 +0000

Hi Lisa

Yes, you are right! In my time I’ve tried outside consultants sitting as quasi-board members – just to hold us to account, I’ve tried no board, and I’ve tried a board where all the members were also shareholders and directors.

None of it worked particularly well.

I guess where Earl’s advice works is when you begin to seperate the business leadership from the ownership.

I know that Stelios Haji-Ioannou – the founder of Easy Jet – began as an entrepreneur but as his business grew he stepped back from the management and became a shareholder using the board to hold the directors to account.

I think that a board needs a clear mandate to function well – and that needs to come from the shareholders – and that usually comes when there is a clear seperation between the business leaders and the shareholders.

Hope this helps
Neil

By: Lisa Hjorten

Lisa Hjorten — Tue, 17 Nov 2009 17:45:54 +0000

Putting together a good board is, unfortunately, easier said than done. I worked hard to put together a board which included a couple of marquee names in our industry. Unfortunately, it takes a long time to get to know board members and some of the advice I got from mine was downright destructive to the business. In the early stages, the CEO/entrepreneur knows the business best and has the most passion for it. If the CEO is held hostage by a board that is not on board, so to speak, the business can fail before it has a chance to even hit its stride. I guess the point is, a bad board is worse than no board. So, take your time and make sure the company is far enough along to warrant the risk and overhead — definitely not pre-funding.

By: Neil

Neil — Fri, 06 Nov 2009 19:18:53 +0000

I just want to thank Earl for allowing us to publish his advice here. It is extremely wise and is a great reminder to us business angels or entrepreneurs that we simply mustn’t rush the hard work and get so excited about the opportunity that we don’t put the structure in place.

I think we all know what Earl is saying is true – and some of us may be tempted to say that our venture is too small to bother with a board.

Well, here is the question we need to ask ourselves, if the business is going to be a great success it won’t be small, so why would you not do this now?

Equally, if you don’t think it is going to be a great success, then perhaps you shouldn’t invest after all.

Either way, we can’t get away from doing what Earl advises.