I feel a bit foolish for asking, but what exactly do board members do?
Does each board member have one vote? I assume events (key hires, acquisitions, investments) are brought to the board for a vote, and need to pass with a majority. Is there ever a case where a single-founder could have multiple board seats? Do board members vote on product/marketing decisions?
The board is responsible for approving all major company actions that aren't delegated to management. In practice, this is mostly: approving option/stock grants for employees, approving financings, hiring and firing senior executives, setting budgets and financial plans, and overseeing the work of management to make sure they're doing what's best for stockholders, and generally talking with management about strategy and plans. They also typically give a lot of help with important hires and making introductions for financings and sometimes business deals. There's no formal vote on other stuff like the product/marketing decisions you asked about, but that would be discussed at board meetings and between them as well, and board members give lots of advice on these topics.
Board members almost always have just one vote each, because its a pain/legal expense to set it up otherwise, and folks hold just one seat each.
Follow-on question: do the shareholders usually have the power to redraw the board? Say you own 60% of the company but only 1 of 3 board seats -- could you overrule the board members or fire them if you felt it necessary? Does the board ultimately answer to the shareholders?
I imagine that this equity and board seat distribution could easily happen with a solo founder.
In more mature companies there will be certain levels of decision delegation, usually tied to CapEx approval or the like, that require board approval vs. senior delegation vs. mid-level delegation. For example, it may be that mid-level managers can approve $10k spend, VPs can approve $1m, EVPs can approve $10m and the board must take anything higher.
This usually dovetails in with project management stage gates, in that for the project to progress to a latter stage, it must pass the financial stage gate to secure funding for that stage. To get that funding then triggers the aformentioned approval process.
Other decisions that may go to the board are executive team hiring, or the approval of major policy.
In start-ups, that's obviously going to be different but hopefully that paints the idea of what a board does. It's essentially a semi-democratic leadership structure for companies, rather than having a single founder run the show. By diversifying that decisionmaking process you, in theory, avoid the big blunders falling on a single person.
And then why can't this model of board (of Directors) be reconsidered and perhaps reinvented? What makes for the need to have a board and what other alternatives to a board does an entity have?
I'm sure someone here knows about the underlying concepts about Companies & Corporations and can answer this.
This is solid advice. I had one of my mentors put it a really elegent way : "Your board should consist of people who fix your weaknesses". Don't have a lot of business contacts? Get a board member who has a huge network. Lack marketing knowledge? Get a board member for that. In a lot of ways its like getting venture capital; wherein you should gather venture capital from experts in the domain you are trying to enter/execute in. Although Im not currently building a board my current venture, this is always one thing that I struggled to find information on: building a board. Maybe I should get a board member who knows how to make a great board...
Strange article. Is this meant primarily for YC companies, or generally? Sounds like advice that's only applicable if you're dealing with very reputable top-tear investors.
My experience: Giving investors substantial control doesn't just give them an ability, it gives them a liability to their LPs. If something goes wrong in the startup, and everyone knows that the board members could have potentially taken drastic steps such as firing the founders to possibly prevent the bad situation, even if the possibility is very small, then that responsibility weighs heavily on the VCs. Giving them substantial control, gives them a big responsibility to fix problems and only a loaded gun with which to fix them.
Just a guess, Sam's advice seems like a classic type of VC advice - do riskier things, because although it will likely end up bad for you individually, we're well diversified and it increases expected value for our VC portfolio as a whole. Suppose that's a big part of the reason why he's the spokesman for YC now.
> Finally, board members stick with the company when things really go wrong, in a way that advisors usually don’t.
Nice choice of wording, they stick with the "company".
> As a side note, bad board members are disastrous. You should check references thoroughly on someone before you let them join your board.
That sounds like more than just a little side note!
I tend to think about this topic as an 'independence spectrum' where YCombinator seems to suggest your independence should be somewhere in the middle.
The spectrum is this:
Being an employee -> being a founder with no majority in the board of your own company -> being bootstrapped, full control
I remember when pg wrote the piece 'you weren't meant to have a boss' which was extremely heavily against 'being an employee', while this piece by Sam Altman seems to be against full control as an 'extreme case'. (For me it is not extreme at all, on the contrary, it is the most natural thing on earth, as natural as the examples in pg's piece about "you weren't meant to have a boss")
I symphathise with having full control, although I can see that you have to make compromises in life; (that's the reason I am an employee now, but at least I have full control in my side project :) )
I can't help but think that, even if YCombinator is the same it has always been, I honestly do not understand the culture they are trying to foster. Is it that you weren't meant to have a boss, or that smart investors make good bosses (have a whole group of them, even if it costs your company money). I have noticed the average programming chops of a YC founder has gone down a lot, and I thought that was a group core value, and remarkably close to mandatory.
I hope YC is both a financial success and changes the lives of the founders in the program for the better. But it isn't something I would apply for anymore. I feel like, as someone who wasn't popular in school, but loved lisp, I am no longer part of the in-group, because I don't have experience with Finance or Sales.
I like what Sam says here, but how would the founders know the new board member is the right fit for a particular startup..would you interview(if so how?) or ...? would love hear what Sam has to say about that.
Apparently YC has an internal "bad investor list", as well as a huge network of easily accessible founders who've dealt with the majority of the investors in the area before.
Presumably, us normal outsiders would have a tough time approaching this level of background checking. I wish something like this bad investor list could be done publicly too.
As for interviewing VCs as the primary method, that must be a joke. They're professional salesmen and always act like your best friend when you're signing. VCs mostly get to where they are for 2 reasons - great deal flow or great personal sales technique, mostly the later.
The best alternative to a board is bootstrapping your company.
You likely do know better and can seek advice anytime you like, but giving up votes and your destiny is another story.
I'm sure some can be fantastic, of course, if you get the right mentor situation and they are well connected and sharp (and correct, believing in you, caring about you, not motivated by investment, etc...).
the second someone tells me that there has been an incredible shift of power and they are no longer in control, my bullshit meter shoots up off the charts. especially coming from someone who is the one holding the purse strings.
can someone who is on the opposite side of the table from Sam Altman provide a counter example to this power shift? I'm interested in hearing both sides.
It's certainly true in most respects that founders have acquired increased leverage.
Mostly due to 1) a million dollars isn't what it was in 1995 2) since 2000 the Fed has been almost constantly pumping liquidity into the US economy, this has made capital far more readily available 3) it has become very cheap to develop and launch products; the cost to manage a million users has plunged over the last ten years 4) knowledge is far more widespread about the industry, practices, etc. among entrepreneurs 5) funding options, systems, networks, have become far more widespread
Today there are dozens of angel networks that are easy to access for tech startups, in basically every major city in the US. In 1995 that simply wasn't the case.
The further along you can develop your business, the greater leverage you have with venture capitalists. Today you need them more to accelerate growth than anything else.
The negative example, that I've been seeing a lot of lately, are very aggressive liquity preferences by VCs. Perhaps I'm just noticing it more, rather than the terms getting worse.
I found it a bit odd that an article on great board members (advisors with teeth) was only reviewed by one person. While there was nothing groundbreaking or surprising in this helpful post, it would have been nice to see it reviewed by one or two other founders and board members, preferably from outside the direct YC family, since this talks in generalizations about what does and does not work.
EDIT: Of course, I do feel a bit spoiled asking for this, as so many of PG's and sama's essays do have a long list of reviewers at the end. And this is of course much less than an essay (which I like). I welcome counter-opinions :-)
This post's title is a bit ambiguous. I originally thought it was a biography about Sam Altman as a YC board member or something and only stopped to actually read it after it got some more upvotes.
How about something like "Choosing Board Members for Startups"?
[+] [-] nodesocket|11 years ago|reply
Does each board member have one vote? I assume events (key hires, acquisitions, investments) are brought to the board for a vote, and need to pass with a majority. Is there ever a case where a single-founder could have multiple board seats? Do board members vote on product/marketing decisions?
[+] [-] jalonso510|11 years ago|reply
Board members almost always have just one vote each, because its a pain/legal expense to set it up otherwise, and folks hold just one seat each.
[+] [-] titanomachy|11 years ago|reply
I imagine that this equity and board seat distribution could easily happen with a solo founder.
[+] [-] NamTaf|11 years ago|reply
This usually dovetails in with project management stage gates, in that for the project to progress to a latter stage, it must pass the financial stage gate to secure funding for that stage. To get that funding then triggers the aformentioned approval process.
Other decisions that may go to the board are executive team hiring, or the approval of major policy.
In start-ups, that's obviously going to be different but hopefully that paints the idea of what a board does. It's essentially a semi-democratic leadership structure for companies, rather than having a single founder run the show. By diversifying that decisionmaking process you, in theory, avoid the big blunders falling on a single person.
[+] [-] monsterix|11 years ago|reply
And then why can't this model of board (of Directors) be reconsidered and perhaps reinvented? What makes for the need to have a board and what other alternatives to a board does an entity have?
I'm sure someone here knows about the underlying concepts about Companies & Corporations and can answer this.
[+] [-] kirinan|11 years ago|reply
[+] [-] solve|11 years ago|reply
My experience: Giving investors substantial control doesn't just give them an ability, it gives them a liability to their LPs. If something goes wrong in the startup, and everyone knows that the board members could have potentially taken drastic steps such as firing the founders to possibly prevent the bad situation, even if the possibility is very small, then that responsibility weighs heavily on the VCs. Giving them substantial control, gives them a big responsibility to fix problems and only a loaded gun with which to fix them.
Just a guess, Sam's advice seems like a classic type of VC advice - do riskier things, because although it will likely end up bad for you individually, we're well diversified and it increases expected value for our VC portfolio as a whole. Suppose that's a big part of the reason why he's the spokesman for YC now.
> Finally, board members stick with the company when things really go wrong, in a way that advisors usually don’t.
Nice choice of wording, they stick with the "company".
> As a side note, bad board members are disastrous. You should check references thoroughly on someone before you let them join your board.
That sounds like more than just a little side note!
Here's the other side of the debate:
http://www.paulgraham.com/control.html
http://blogs.wsj.com/accelerators/2013/06/17/steve-blank-don...
http://venturehacks.com/articles/one-way-control
http://venturehacks.com/articles/board-structure
[+] [-] nadam|11 years ago|reply
The spectrum is this:
Being an employee -> being a founder with no majority in the board of your own company -> being bootstrapped, full control
I remember when pg wrote the piece 'you weren't meant to have a boss' which was extremely heavily against 'being an employee', while this piece by Sam Altman seems to be against full control as an 'extreme case'. (For me it is not extreme at all, on the contrary, it is the most natural thing on earth, as natural as the examples in pg's piece about "you weren't meant to have a boss")
I symphathise with having full control, although I can see that you have to make compromises in life; (that's the reason I am an employee now, but at least I have full control in my side project :) )
[+] [-] hawkice|11 years ago|reply
I hope YC is both a financial success and changes the lives of the founders in the program for the better. But it isn't something I would apply for anymore. I feel like, as someone who wasn't popular in school, but loved lisp, I am no longer part of the in-group, because I don't have experience with Finance or Sales.
[+] [-] pen2l|11 years ago|reply
Such as?
[+] [-] randall|11 years ago|reply
http://blogs.wsj.com/deals/2012/02/01/at-facebook-governance...
[+] [-] bozoUser|11 years ago|reply
[+] [-] solve|11 years ago|reply
Presumably, us normal outsiders would have a tough time approaching this level of background checking. I wish something like this bad investor list could be done publicly too.
As for interviewing VCs as the primary method, that must be a joke. They're professional salesmen and always act like your best friend when you're signing. VCs mostly get to where they are for 2 reasons - great deal flow or great personal sales technique, mostly the later.
[+] [-] snowmaker|11 years ago|reply
[+] [-] pen2l|11 years ago|reply
[+] [-] mpdehaan2|11 years ago|reply
You likely do know better and can seek advice anytime you like, but giving up votes and your destiny is another story.
I'm sure some can be fantastic, of course, if you get the right mentor situation and they are well connected and sharp (and correct, believing in you, caring about you, not motivated by investment, etc...).
[+] [-] ryanx435|11 years ago|reply
can someone who is on the opposite side of the table from Sam Altman provide a counter example to this power shift? I'm interested in hearing both sides.
[+] [-] adventured|11 years ago|reply
Mostly due to 1) a million dollars isn't what it was in 1995 2) since 2000 the Fed has been almost constantly pumping liquidity into the US economy, this has made capital far more readily available 3) it has become very cheap to develop and launch products; the cost to manage a million users has plunged over the last ten years 4) knowledge is far more widespread about the industry, practices, etc. among entrepreneurs 5) funding options, systems, networks, have become far more widespread
Today there are dozens of angel networks that are easy to access for tech startups, in basically every major city in the US. In 1995 that simply wasn't the case.
The further along you can develop your business, the greater leverage you have with venture capitalists. Today you need them more to accelerate growth than anything else.
The negative example, that I've been seeing a lot of lately, are very aggressive liquity preferences by VCs. Perhaps I'm just noticing it more, rather than the terms getting worse.
[+] [-] JacobAldridge|11 years ago|reply
My standard response is that "an odd number is required, and 3 is too many."
That's the kickoff point for explaining that the right question isn't "How many?", it's "Who?" Who is right for your Board?
I agree with sama that an even number isn't usually an issue if it's the right people.
[+] [-] unknown|11 years ago|reply
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[+] [-] unknown|11 years ago|reply
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[+] [-] unknown|11 years ago|reply
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[+] [-] rcyn|11 years ago|reply
[+] [-] rattray|11 years ago|reply
EDIT: Of course, I do feel a bit spoiled asking for this, as so many of PG's and sama's essays do have a long list of reviewers at the end. And this is of course much less than an essay (which I like). I welcome counter-opinions :-)
[+] [-] sdrothrock|11 years ago|reply
How about something like "Choosing Board Members for Startups"?
[+] [-] foobar_man|11 years ago|reply
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