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Question from someone uneducated on this topic: is it impossible to get VC levels of investment without giving away board seats? Is a board even required for p

Question from someone uneducated on this topic: is it impossible to get VC levels of investment without giving away board seats? Is a board even required for private companies?

tptacek 5y ago
I'm not the most informed person on HN who can respond to this but as a general rule it's within the bounds of normality to raise single-digit millions in unpriced rounds ("seeds") that don't generally have board seats attached, but your first significant priced round (your "A" round) will essentially always give up board seats. Formal boards are not required for private companies.
- hobbyjogger 5y ago
  Delaware (and all or at least most other states) requires at least one member on the board of directors for any corporation, whether it's private or public.
  - tptacek 5y ago
    For bootstrapped (for lack of a better term) companies these "boards" are pure formalities; it's a running joke among bootstrappers that they flip a coin to figure out who the listed corporate officers are going to be.
  - nostrademons 5y ago
    The incorporator, board member, investor, CEO (President), Treasurer, Secretary, and sole employee can all be the same person.
- somerando7 5y ago
  There's nothing legally requiring me to give any seats for investment though right? Reading through this and my gutt feeling is that if I had a company doing really well I would do my absolute best to not give up any control over it - but idk how many investors would be willing to invest in that case (if we were doing really well though, I assume at least some would?)
  - tptacek 5y ago
    In practical, ordinary terms, there's nothing legally requiring you to give board seats to any investor.
- lmeyerov 5y ago
  Yeah somewhere around Series A and esp Series B chances are, unless the founders really lucked out (eg, equity funding that could have been a debt round due to insane profits), they'll have lost control
  - tptacek 5y ago
    I don't think losing control after an A round is totally normal.
    - lmeyerov 5y ago
      shares: preseed / seed / A / option pool + multiple cofounders means CEO is a minority holder, and common may be as well. for firms raising big seeds, I expect even more likely at the A. board: many co's give 1 board seat at Seed and another at A, so lose the board around B. but more negotiable, eg, seed investor gives seat to later investor . So it seems normal: for most, somewhere between A + B, and except for outliers, by C. Edit: VCs generally have an ownership target, say 15% as a lead, and less as a follower. So that adds up quickly.
PragmaticPulp 5y ago
The board seat is a part of the negotiation in larger rounds. Depending on how much leverage the company has in the negotiation, they can argue for a mutually agreeable 3rd party board seat. In many cases this ends up being someone favorable to the CEO, or at least less directly aligned with the investors. Some companies have grown quite large with small boards. The company will need a certain number of people to make up the board, though, so it helps to start identifying such people early.
kelnos 5y ago
> is it impossible to get VC levels of investment without giving away board seats? Not impossible, but extremely difficult. You need to already be successful to a degree that investors are fighting each other to give you money, to the point where they will still give you that money without asking for any amount of control of or oversight over the company. Google[0] and Facebook founders managed to do this (though not through board composition, but through stock classification and voting rights), but 99.9% of other founders will not have that kind of clout. > Is a board even required for private companies? I believe some state laws around incorporation require them, but otherwise it's just a standard way of doing things that a company will lay out in its charter/by-laws. You're going to have a really hard time convincing a VC to give you money if you tell them that you're not going to have a board of directors. Even if you present an alternative structure that gives the VC some form of oversight, they will be (rightly) skeptical, since this is unproven ground and they will be (rightly) afraid that their lack of understanding of your unique structure will come back to bite them later. [9] I do think Page and Brin retaining control of Google was especially impressive, considering that their early funding rounds happened during, and in the aftermath of, the original dot-com bust, when investors were probably pretty leery of funding tech companies.
deckard1 5y ago
> is it impossible to get VC levels of investment without giving away board seats? Microsoft, interestingly, was after the opposite. They took a rather nominal $1M VC funding to get someone knowledgeable on their board. Probably helped when it came time to IPO. They definitely didn't need the funding. VCs would love for the world to believe that their funding is necessary. But often that sort of rocket fuel is detrimental to the growth of a company. It puts immense sudden pressure on a company, relationships are strained, and really weird things start to happen as your headcount shoots past 20-30 people.
- GDC7 5y ago
  > Microsoft, interestingly, was after the opposite Microsoft is like Marylin Monroe, or Michael Jackson or that person who lived to 123 years old. You'll never see a company like that ever again in your lifetime. They did what Standard Oil did, in perhaps an even cleaner and uncontroversial manner. Tons of talent and luck aligned in the exact right way for it to be the phenomenon it became.
  - streetcat1 5y ago
    You mean luck of copying wordperfect and visicalc? Or maybe the purchased OS and the IBM deal?
    - profile53 5y ago
      In the same way standard oil was just another oil company. Execution and business strategy set Microsoft apart, not unique software.
    - GDC7 5y ago
      Microsoft bet on GUI when nobody thought it was gonna be the future

Question from someone uneducated on this topic: is it impossible to get VC levels of investment without giving away board seats? Is a board even required for private companies?

tptacek 5y ago

I'm not the most informed person on HN who can respond to this but as a general rule it's within the bounds of normality to raise single-digit millions in unpriced rounds ("seeds") that don't generally have board seats attached, but your first significant priced round (your "A" round) will essentially always give up board seats. Formal boards are not required for private companies.

hobbyjogger 5y ago
Delaware (and all or at least most other states) requires at least one member on the board of directors for any corporation, whether it's private or public.
- tptacek 5y ago
  For bootstrapped (for lack of a better term) companies these "boards" are pure formalities; it's a running joke among bootstrappers that they flip a coin to figure out who the listed corporate officers are going to be.
- nostrademons 5y ago
  The incorporator, board member, investor, CEO (President), Treasurer, Secretary, and sole employee can all be the same person.
somerando7 5y ago
There's nothing legally requiring me to give any seats for investment though right? Reading through this and my gutt feeling is that if I had a company doing really well I would do my absolute best to not give up any control over it - but idk how many investors would be willing to invest in that case (if we were doing really well though, I assume at least some would?)
- tptacek 5y ago
  In practical, ordinary terms, there's nothing legally requiring you to give board seats to any investor.
lmeyerov 5y ago
Yeah somewhere around Series A and esp Series B chances are, unless the founders really lucked out (eg, equity funding that could have been a debt round due to insane profits), they'll have lost control
- tptacek 5y ago
  I don't think losing control after an A round is totally normal.
  - lmeyerov 5y ago
    shares: preseed / seed / A / option pool + multiple cofounders means CEO is a minority holder, and common may be as well. for firms raising big seeds, I expect even more likely at the A. board: many co's give 1 board seat at Seed and another at A, so lose the board around B. but more negotiable, eg, seed investor gives seat to later investor . So it seems normal: for most, somewhere between A + B, and except for outliers, by C. Edit: VCs generally have an ownership target, say 15% as a lead, and less as a follower. So that adds up quickly.

PragmaticPulp 5y ago

The board seat is a part of the negotiation in larger rounds. Depending on how much leverage the company has in the negotiation, they can argue for a mutually agreeable 3rd party board seat. In many cases this ends up being someone favorable to the CEO, or at least less directly aligned with the investors. Some companies have grown quite large with small boards. The company will need a certain number of people to make up the board, though, so it helps to start identifying such people early.

kelnos 5y ago

> is it impossible to get VC levels of investment without giving away board seats? Not impossible, but extremely difficult. You need to already be successful to a degree that investors are fighting each other to give you money, to the point where they will still give you that money without asking for any amount of control of or oversight over the company. Google[0] and Facebook founders managed to do this (though not through board composition, but through stock classification and voting rights), but 99.9% of other founders will not have that kind of clout. > Is a board even required for private companies? I believe some state laws around incorporation require them, but otherwise it's just a standard way of doing things that a company will lay out in its charter/by-laws. You're going to have a really hard time convincing a VC to give you money if you tell them that you're not going to have a board of directors. Even if you present an alternative structure that gives the VC some form of oversight, they will be (rightly) skeptical, since this is unproven ground and they will be (rightly) afraid that their lack of understanding of your unique structure will come back to bite them later. [9] I do think Page and Brin retaining control of Google was especially impressive, considering that their early funding rounds happened during, and in the aftermath of, the original dot-com bust, when investors were probably pretty leery of funding tech companies.

deckard1 5y ago

> is it impossible to get VC levels of investment without giving away board seats? Microsoft, interestingly, was after the opposite. They took a rather nominal $1M VC funding to get someone knowledgeable on their board. Probably helped when it came time to IPO. They definitely didn't need the funding. VCs would love for the world to believe that their funding is necessary. But often that sort of rocket fuel is detrimental to the growth of a company. It puts immense sudden pressure on a company, relationships are strained, and really weird things start to happen as your headcount shoots past 20-30 people.

GDC7 5y ago
> Microsoft, interestingly, was after the opposite Microsoft is like Marylin Monroe, or Michael Jackson or that person who lived to 123 years old. You'll never see a company like that ever again in your lifetime. They did what Standard Oil did, in perhaps an even cleaner and uncontroversial manner. Tons of talent and luck aligned in the exact right way for it to be the phenomenon it became.
- streetcat1 5y ago
  You mean luck of copying wordperfect and visicalc? Or maybe the purchased OS and the IBM deal?
  - profile53 5y ago
    In the same way standard oil was just another oil company. Execution and business strategy set Microsoft apart, not unique software.
  - GDC7 5y ago
    Microsoft bet on GUI when nobody thought it was gonna be the future