Golden Gate Ventures Founding Partner Vinnie Lauria speaks about boards

Golden Gate Ventures Founding Partner Vinnie Lauria

When an idea starts to become a company, entrepreneurs know to keep up on the latest marketing strategies, or spend countless hours fine-tuning investment pitches, but founding a board is one facet of business often overlooked.

At this year’s SID Directors’ Boards and Innovation Conference, e27 caught up with Golden Gate Ventures Founding Partner Vinnie Lauria to hear his thoughts on the value a board provides a company.

Lauria is on the boards for Singapore’s C2C marketplace Carousell, Singaporean loan, insurance and credit card portal MoneySmart, and Indonesian e-commerce company Bilna. Additionally, he advises for various undisclosed companies.

The first steps

Every company has to have a board of directors. In the startup world, this usually consists of the co-founders. The next step is deciding when to bring in investors and possibly independent members.

“When we do a seed investment as a firm, we don’t ask for a board seat. Companies should start a board when it raises formal VC investment,” says Lauria. “Bringing in someone external usually comes with money.”

He added companies should be wary of people who do not bring a lot of money to the table and want a lot of rights.

“For startups, the investment agreement has different sets of rights. Some are voting shares (common or preferred) and some are board seats. Generally most rights come down to shares and usually the largest investor gets [more important] rights.

“Those rights are not who to hire, but rather deciding if we sell next quarter. So I think an entrepreneur needs to be intimately aware of what decisions investors/board members can make. Does one investor make all the decisions or multiple [decision-makers]?”

To elaborate, a business strategy may be hammered out during a board meeting, but in the end, shareholders sometimes have voting rights over whether or not the decision is passed.

As the name would imply, preferred share holders hold more authority than common share holders.

It is also important to value specifics about who will be on the board. A company may have a positive relationship with an senior investor, but then a junior associate winds up serving on the board. In Asia, VC firms are smaller than their Western counterparts, making it less likely to happen here, but CEOs need to have an explicit understanding of the board’s make-up.

Ideal startup boards should have three people, five at most. Essential are the founders and the investors, but Lauria says, if possible, on-boarding an independent outsider can be valuable.

“It should be someone the entrepreneur looks up to, respects, who he/she wants to build a deeper working relationship with,” he said. “So in that light, I would say if you are looking for someone external, shoot a little higher, go a bit bigger and try to build a relationship with somebody that you wouldn’t normally have.”

Why should companies be excited to start a board?

Once a company receives a large fundraising, the investors will usually ask for a seat on the board. While the company cedes a certain amount of independence, boards add a lot of value.

“Board members, and especially investors, have insights into a lot of different companies. So they can share lessons learned from another company,” says Lauria.

He tells a story of a company he ran in San Francisco. They were pitching a new ad-hoc pricing model and one of the investors said, “another one of our companies tried that, and it went horribly”. Learning a pricing model will not work at the pitching stage is invaluable for saving time and money.

Besides business strategy, boards also allow people to collaborate and learn from one another.

“It gives senior members an opportunity to learn from the bottom-up. An executive of a bank who is on the board of an early-stage fintech startup is plugged in to what is new, what is hot, what is up and coming.”

And, as mentioned above, a young company learns from the experiences of older members.

The actual meeting

“Rule number one is approach it like a funding pitch. So the idea is, if [a CEO] approaches the meeting with that mindset, he/she is going to put in a presentation, talk about how they are doing, the future, opportunities [to pursue]. Investors with boards have already raised some capital so it should be a familiar experience.”

Lauria adds that is important to plan the meeting at least a month in advance. Block out two or three hours and first talk to the most important person to lock down their schedule.

During the meeting, entrepreneurs should cover the previous three months, explain peaks or valleys in growth, talk about the future and set aggressive targets. The board should also discuss if they met the goals from last meeting. Delving into the whys of success or failure is important.

A company’s hiring plan is also a great topic to discuss because members have a large network and they can suggest (and connect) quality talent.

The worst thing a CEO can do?

Not be transparent.

“Don’t try to hide anything under the carpet. It sets off alarms. As a board member I would rather hear about the problems and talk about them throughout the meeting.”

And a final bit of advice…

“It is the investor that you choose first, then [that firm] sits on the board. So early on, if you have a choice of investors, really ask the difficult questions… Experiences they have gone through with their portfolio. Talk to other portfolio CEOs. Don’t just ask them about the experience on the board, but what is the experience with the investor. How has it been when there have been differing opinions?” recommends Lauria.