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Why I Don’t Like Board Observers

6 points by wheels 17y ago

grellas 17y ago
A good discussion of the downside of having board observers but, bottom line, this is a valuable tool for effecting compromises when negotiating among investors and is therefore very often just a necessary (and manageable) price to pay for closing your funding round effectively or otherwise breaking sometimes tricky roadblocks among different people seeking a say in the startup's business. Once a startup has been VC-funded, control issues are inevitably a delicate proposition and this is just one more (and comparatively minor) piece of the normal balancing act. Essential point of the piece (and a good one): as an entrepreneur, when considering the board-observer role, don't forget the human element of how someone can sway others even without formal authority and thereby affect the dynamic of your board.
sachinag 17y ago
The VC firm I used to work at only took Board Observer spots, even in situations when we'd lead deals. The reason for this was essentially cultural (it was a captive arm of a much larger company), but I still think Observer roles are OK even without external considerations. To me, the argument is that every new person you put in that room introduces this element - this is essentially an argument for smaller Boards, not that Observers are bad. Lookit, I refuse to believe that a Board Observer can really wheedle three other high-ego VC Partners to a terrible decision that they would otherwise have avoided. And if it can happen, then what's to say that the opposite can't happen - that the Observer doesn't save the company from a disastrous outcome? Selfishly, the opportunity to go to a few board meetings - both alone and with the partner - was great for me personally. I got a much better understanding of how to run a meeting, what's discussed, what materials, and what does and does not come up for a vote. I think that information had made me a better entrepreneur, because I get a much better sense for what's really important.
tptacek 17y ago
Short summary: because board votes are usually unanimous (board dissent can have legal implications), the ability to attend and address the board is almost as powerful as the ability to vote on a board; observers may end up getting de facto board seats.

6 points by wheels 17y ago

A good discussion of the downside of having board observers but, bottom line, this is a valuable tool for effecting compromises when negotiating among investors and is therefore very often just a necessary (and manageable) price to pay for closing your funding round effectively or otherwise breaking sometimes tricky roadblocks among different people seeking a say in the startup's business. Once a startup has been VC-funded, control issues are inevitably a delicate proposition and this is just one more (and comparatively minor) piece of the normal balancing act. Essential point of the piece (and a good one): as an entrepreneur, when considering the board-observer role, don't forget the human element of how someone can sway others even without formal authority and thereby affect the dynamic of your board.

sachinag 17y ago

The VC firm I used to work at only took Board Observer spots, even in situations when we'd lead deals. The reason for this was essentially cultural (it was a captive arm of a much larger company), but I still think Observer roles are OK even without external considerations. To me, the argument is that every new person you put in that room introduces this element - this is essentially an argument for smaller Boards, not that Observers are bad. Lookit, I refuse to believe that a Board Observer can really wheedle three other high-ego VC Partners to a terrible decision that they would otherwise have avoided. And if it can happen, then what's to say that the opposite can't happen - that the Observer doesn't save the company from a disastrous outcome? Selfishly, the opportunity to go to a few board meetings - both alone and with the partner - was great for me personally. I got a much better understanding of how to run a meeting, what's discussed, what materials, and what does and does not come up for a vote. I think that information had made me a better entrepreneur, because I get a much better sense for what's really important.

tptacek 17y ago

Short summary: because board votes are usually unanimous (board dissent can have legal implications), the ability to attend and address the board is almost as powerful as the ability to vote on a board; observers may end up getting de facto board seats.