In the fast lane

There are so many rewards and benefits of being involved in startup governance. Focusing on the higher risk nature of startup businesses, while understandable, can discourage experienced governance professionals from adding a startup to their portfolio. However, if New Zealand is to leverage the economic growth potential of startups we must increase the pool of experienced directors and encourage a wider group of business people to get involved in the space.

Why would someone want to join a startup board? For one thing, directors have the privilege of mentoring some very innovative and clever people – and their passion and vision can be truly inspiring. The support the board provides can have a direct impact on the success of their businesses. For directors who enjoy a fast-paced environment, high-growth businesses offer plenty of new challenges. They can also offer the chance to be right at the cutting edge of an industry, or even at the beginning of an entirely new one.

Each director understanding their professional risk tolerance is essential because issues tend to be magnified. One new team hire can have an outsized impact, the loss of a key account or relationship may require a quick pivot, and spending scarce money on professional advice is a significant investment.

Around the board table, there is less room for mistakes, but startup directors understand that standing still just isn’t an option if the business is to grow. It’s challenging and stimulating, and directors will have to make decisions with limited information knowing they may well need to revisit strategies when presented with new information. While the work is meaningful and rewarding, a startup board is not ideal for anyone fresh to governance, or who isn’t genuinely passionate about growing the next generation of New Zealand businesses.

That said, a startup board is a great place for directors to continue to develop their skills and grow professionally.

Ngaio Merrick, a managing partner of Nuance Connected Capital, says everything that happens on a bigger board happens on a startup board only faster and more often, preparing you for many more alternatives as you go through your governance career.

Big boards can take years to raise capital, deal with a non-performing team member, go through a board refresh, pivot the business model and consider M&A opportunities, all of which can happen within a year or two on a startup.

The best directors for startups often come from strong operational backgrounds with a diverse career, have a well- developed understanding of risk and very little ego. They will have high EQ, an interest in entrepreneurship and, ideally, they have already dabbled in starting their own company or angel investing, and learned a few lessons along the way. Most importantly, they need to be prepared to walk alongside a founder to support and guide their vision.

Board members should be the first port of call when management teams need advice or support.

Rudi Bublitz, director and co-founder of FKA (Flying Kiwi Angels), says the directors’ role is to nurture and grow the CEO and their team more than driving and controlling the business. He says directors often build strong personal relationships with founding teams and they need to be constantly looking out for opportunities to bring others into the CEO’s orbit to help them on their journey.

Directors should be prepared to support the founding team for the long haul as standard board appointment term limits rarely apply.

Directors who bring general management, human resources, product development, marketing, finance or legal skills can have immense value to a founding team.

Many founders have not worked with a board or led an executive team before, so an experienced director can provide a sounding board and insights into best practice as they build up their teams and company culture.

Founders also often don’t have all the connections in key markets they need – or access to external partners who can help them achieve their strategy – and directors can bring some of that expertise or make helpful introductions. Mentoring a team through an important commercial negotiation is another key area where an experienced director can add enormous value.

The directors of a startup business do not all need to be capital-raising experts. Capital raising is primarily a founder- led activity in which the board plays a supporting role by determining the business’ capital strategy, providing founder support and introductions to potential investors.

In a capital raise, directors advocate for the business and lend assurance to investors that the founding team has the right guidance to be successful. Specific industry experience, deep product or domain experience, experience growing a similar business or having other specific skills relevant to the business’ success are greatly valued by investors.

Many directors are brought onto their first startup board to provide this proven experience. If this is the case, a lack of specific startup experience is not a significant hurdle, although it is important the director makes sure there is sufficient startup experience on the board as a whole.

Experienced directors will often have gained their skills in careers with corporates, professional services organisations and privately held or iwi-led businesses. Any of these environments can provide the opportunity to grow skills that are useful to a startup. For example, anyone who has held responsibility for strategy, change management or digital transformation is likely to have relevant skills.

Industry experience is enormously valuable as well, provided the director has the flexibility to apply their skills to the unique challenges facing a smaller organisation. In-house lawyers and finance professionals can also make great startup directors with their skills in analysing risk and helping teams achieve compliance.

Senior sales executives and marketers support founding teams to move from passion and enthusiasm to meaningful execution. And product development or CTO skills add the next level of insight to technology development. Entrepreneurs running their own businesses can also find it rewarding to apply their hard-won knowledge to another startup board. And that can be a game-changer for the business.

When considering joining a startup board:

1. Closely evaluate not only the business but the directors. Do they have skills valuable to the business? Can the chair effectively manage the board and other stakeholders? Directors need to be comfortable with the personalities and coachability of the key people in the business and that they understand the ownership structure and shareholder dynamics. The relationship between a founding team, board and shareholders is critical to a startup’s long-term success, and each director has a role in creating a cooperative working relationship between the board, management and shareholders.
2. Know the governance basics well and, once on the board, insist on good governance, especially the checks and balances that enable a board to know the business is being well-managed. Governance does need to be ‘right- sized’ for startups, meaning previous governance experience is crucial so directors can ensure the core elements of good governance are observed in a lean and often fast-moving context. For example, while it may not be realistic to expect all startups will maintain a sophisticated risk register, directors need to ensure financial, regulatory, operational and people risks are still identified and being regularly discussed.
3. Every director needs to fully understand the business’ financial position, outlook and overall trajectory. And if there are other parts of the business that aren’t easily understood, such as core underlying technologies or new business models, directors need to educate themselves by asking detailed questions and spending time with the relevant staff members. By being proactive in thoroughly understanding the business and the risks it faces, directors influence how these are managed and reduce the overall risk profile of the startup over time.
4. Recognise that startups can change rapidly and the board will need to continually educate itself and be open to change as the business grows or faces new challenges.

To get involved in startup governance, a good first step is to extend networks in the community. This can include going along to events such as the annual Icehouse Showcase, speaking to founders about their businesses, or joining an angel group (see angelassociation.co.nz) and looking for ways to get involved by offering to generously share your expertise. 

About the author

Caroline Williams has been a director, angel investor and advisor to startup and high-growth technology companies for more than a decade. She is currently a director of several high-growth companies and chairs two boards. She belongs to the FKA angel group and is a facilitator for FKA’s 4 Flying Founders peer support programme.