Transcript:

Ariana Shaffer:

Board control as a founder is maybe your most important right that you want to maintain as long as possible. Founders think, Well, I'm losing equity. I'm or not losing equity, I'm getting diluted every round and I'm losing control. But even if you have less equity but you control the board, that's really where the decision-making power is and the authority comes from.

I would say board control is something you don't want to give up and you want to be very cautious about giving board seats.

I see a lot of founders giving board seats in safe rounds or giving two board seats in series seed. And think about this. The average company now, I think they're raising a series J or H — I keep seeing them be more and more. It used to be like just D and E and then you went public, but now companies are staying private 10, 12 years, maybe not as much right now with AI, but traditionally that's where we've been seeing the model headed. And so if every round you're adding a board member, if you're doing five rounds even, that's five preferred board members to you as a founder, and maybe you have two founders on the board.

So that's, two to five. You guys are are outvoted on everything. Not to mention a board of seven is just it's gonna be hard to get a lot done. that's a lot of opinions in the room. So I always say start with advisors and people that you want close to you, see if they'll come on as advisor, see if if it's an investor, if you can do board observer instead of a board seat. And then over time, if it turns out, hey, no, this person's really pivotal, we need them on the board, add them to the board, but I think a lot of founders add board members too premature. And it's hard to get people to step down, honestly, right? Like nobody wants to be asked to step off a board, especially if you're doing well, which again, we're doing this, because we know you're going to be successful and do well. And so all of this down the road is is going to be a lot more painful if you if you don't do it right in the beginning. So I would say that, I mean, board control for sure, making sure you're giving more board observers than you are board seats.

Even with that, I'd be careful. Like if you're giving an investor a board seat, ideally they don't also have a board observer seat because that changes the dynamic in the room, right? Like even though only one of those people can vote, they're both probably speaking, they're both thinking the same way. And so they might have, an outsized voice versus just you ⁓ as the founder in the room. ⁓ and then I would say in the rights to look for anything.

You'll have rights called protective provisions in your charter. And those are to protect your investors because day to day you're running the company. You and and your employees are running the company. The board is there to advise you and to oversee. So they want to have certain protections to know, like, hey, you can't just go give out a bunch of equity without us knowing, because that of course affects us as well. But you want to make sure that those protective provisions are things that are not going to slow you down in growth mode, right? So like issuing equity, yes, that's fine. But a provision where you can only take on debt of $10,000 is probably not ideal because then, as you grow that, you're probably trying to get approvals once a week for that amount, and you will find that getting board approval on things you're always chasing investors, et cetera. So those aren't things that you're gonna be able to write away, be able to get approval on and so they become a bottleneck and then that's frustrating for you trying to run the company and and it can create not a great environment and relationship with your investors. So I would say that, just think make sure that the rights you're giving them are things that are not day to day operational things that you need to have control over. But they're broader things that are more just protections for investors that, put yourself in their shoes that you would you would want as well.

Lindsey S. Mignano:

Awesome. I think that's a really important topic. It's something that comes up quite often in terms of like how many people on the board, how many board observers, what should the scope of the decisions be for that board? It all comes up during the round, so I think that's a really good thing to elucidate. Guys, thanks so much for coming and visiting with us today. We were happy to have you. If you have any questions, feel free to drop it in the comments. Thanks.

Ariana Shaffer:

Thanks guys.