Board of Directors for Start-Ups 101

Lately, corporate social responsibility is becoming increasingly important for businesses in Singapore. The board of directors is a group of people who are overseeing the management and at times, act as the independent body who performs checks and balances on the company. In the start-up, the situation is slightly different. You may have one board of director if your company is invested by a venture capital group or some angel investors. So, what is the criteria for you to select someone as a board of director in a start-up?

Here are two conditions where someone can become a board of director in a start-up (usually in a technology start-up):

• He or she is your investor: This is the most straightforward situation. He who puts the gold, makes the rules. The person is either looking after his own investments or representing a group of investors (venture capitalists and business angels) behind these investments. It is an unwritten rule that the investor is definitely one of the people sitting on your board. The reason is that he wants to know whether the management team are keeping track of their timeline and milestones and not wasting resources to get the company going.
• He or she is someone with an expertise: In technology start-ups, it is often important to have a board of director who have strong credentials. For example, in the biotech business, given the high amount of investment seeded into the company, the board of directors or the management team will usually appoint either a senior executive from a respectable biotech company (which has no conflict of interest) or an academic who is an expert in this area. This is particularly useful in forming strategic partnerships and also these people have the credibility to introduce you to potential clients for the business.

Once you figure out that out, the next question is enumeration and a formal agreement. It is important sometimes to put things in pen and paper such it can help you to work what exactly you need this person for. First of all, a board of director should not interfere in the management team under certain circumstances. The reason is that they are busy people and don’t have a lot of time for you. Their role is to advise you and in the end, you are supposed to take the advice and see how it can help you in the process. Oftentimes, when advising start-ups, when a team suggests someone as a board of director, my inclination is to keep asking them why they need this person and the specific role that this person is playing. When you draft out the formal agreement, you will be able to pin down what you need this person to help you on.

However, I do caution one thing. I often tell my students never to give a director position to people who claim to have contacts of so and so people. While collecting case studies, I often found that some companies collapse because of so and so person claimed to price their contacts for equity and they are effectively cheating the company. Hence before getting someone on your board, you should do due diligence. Credibility is an important marker when it comes to selecting someone on the board. This is what I suggest to you, if the person cannot help you in a few tasks without asking something in return, it may be a good litmus test to determine whether the person is a fake or taking you for a ride.