Startups

What Startups Need to Consider Before Forming a Board of Directors

  • 4 min Read
  • November 12, 2019

Author

Escalon

Table of Contents

A board of directors helps oversee the activities of a company or organization. Publicly held companies have to have a board of directors, while private companies don’t.  


That begs the question for many startups as to whether or not they need a board of directors, and if so, when? There are many reasons this is a good idea for most startups. So, for the purposes of this article, let’s say you do need one.


In this case, we look at what startups need to consider before forming a board of directors.


The basics



In the beginning, your board can just be one person. It doesn’t have to start out in an elaborate fashion.


If you’re adding more people to the board, it usually consists of the startup founder, investors, advisors, and even people in the community with the expertise to help you grow and scale.


You can choose the size of your board. It is usually best to stick to an odd number, so you have a tie-breaker. We like five people for a manageable size board.


When you start getting into very large boards, your efficiency drops, and there are too many voices. You also have a hard time scheduling meetings the larger your group.


Because your board is ultimately responsible for the big decisions such as whether you need to raise more money, hire and fire senior staff, strategic decision making and more, you want to make sure you pick the right people from the start.


These must be smart people who know a lot about your industry or in such areas as marketing and finance.


When should I seat a board?



It’s advisable to make sure you have a board after your initial seed round. You will usually give a board seat to the person/firm who led that first seed round.


Because you want your founding team to maintain control of the board, you want to give two board seats to your founding members, while the new investor has one seat.


Then, as you add investors, you can give them new board seats. Do note that each time you accept an investor, you are most likely bringing on a new board member. In fact, many investors will make that a term of their investment. If you don’t 


After your second round of financing, you can set aside an independent board seat. This is usually not an investor or employee of your startup. They should however have industry knowledge or important contacts in your community.


Watch the growth of your board, and if you find it is getting too big, you can always give out observer positions. These folks come to your meetings, but they don’t have a vote.


What does a startup board do?



Your startup’s board of directors is responsible for managing your company’s overall vision. They make the major decisions such as:


  • Hiring and firing your management team.
  • Approving budgets.
  • Deciding whether or not to go after more funding.
  • Keeping the company financed.
  • Hiring and/or approving senior management hires.
  • Deciding salaries and stock options. This means your salary as the founder.
  • Providing community connections.
  • Offering advice and guidance.

To conclude



When forming a board of directors, think carefully about the makeup of your board.


As you put together and grow your board of directors, consider the diversity of the group of people. Do you have enough people with varied skills and contacts so that everyone has something to offer?


In addition, you want to consider people who offer various perspectives and opinions.


Overall, you want to maintain a culture of communication. Your board won’t always agree with one another, but if you have a healthy board with open communication, you can weather your differences.


Do try and reach a consensus before each board vote. If things are divided, you can end up with a trickle down into your company that affects the overall culture of your startup.


If you create a board with thoughtfulness and instill a positive culture, you’ll find that your board has a lot to offer your startup as you scale your company.


Are you a new startup ready to succeed? Are you looking to get your new business off the ground and watch it rise to success? 


We are here for you. We can help answer your questions and guide you through the process. Outsource your HR duties, finances, payroll and more to us. 


Contact Escalon today to get started.

Talk to our team today to learn how Escalon can help take your company to the next level.

  • Expertise you can trust

    Our team is made up of seasoned professionals who bring years of industry experience to the table. You gain a trusted advisor who understands your business inside out.

  • Quality and consistency

    Say goodbye to the hassles of hiring, training and managing in-house finance teams. You will never have to worry about unexpected leave of absence or retraining new employees.

  • Scalability and Flexibility

    Whether you’re a small business or a global powerhouse, our solutions scale with your needs. We eliminate inefficiencies, reduce costs and help you focus on growing your business.

Contact Us Today!

Tap into the latest insights from experts in your industry

People Management & HR

Leveraging AI for Efficient People Operations

Artificial intelligence (AI) isn’t just for tech giants anymore—it’s increasingly accessible to small and mid-sized businesses seeking a competitive edge...

Read More
Accounting & Finance

How to Set Up Payroll, A Guide for Small Business Owners 

Setting up a payroll system is an essential step that helps small business owners pay their employees accurately and on...

Read More
Accounting & Finance

Financial Planning for the Future, Setting Long-Term Business Goals

While small businesses must handle day-to-day tasks—like managing payroll or closing monthly books—long-term planning is the compass that keeps them...

Read More
People Management & HR

Benefits Administration, What Small Business Need to Know

Benefits administration can be a game-changer for small businesses aiming to attract and retain top talent. While salaries remain an...

Read More
Accounting & Finance

AAP vs. Cash Accounting: Which Method Is Best for Your Growing Business? 

Choosing the right accounting method can significantly impact how you track financial performance, manage taxes, and plan growth. Two common...

Read More
Accounting & Finance

Beyond Bootstrapping: Advanced Cash Flow Management for Scaling Companies 

Bootstrapping—financing growth through internal cash flow—is a hallmark of many successful startups. But as businesses mature past their initial stage,...

Read More
Technology & Security

Building a Scalable Tech Stack: How to Choose the Right Tools for Growth 

In today’s business landscape, technology is more than a convenience—it’s a strategic asset that can supercharge growth. But as you...

Read More
Accounting & Finance

How to Reduce Month-End Close Time Without Sacrificing Accuracy 

The month-end close can feel like a perpetual scramble—collecting invoices, reconciling accounts, fixing last-minute errors. A drawn-out close not only...

Read More
uncategorized

How to Reduce Overhead Costs Without Impacting Productivity 

Overhead costs—from utilities and rent to administrative staffing—can quietly swell until they erode profit margins and slow your ability to...

Read More