Startups must be Aware: Overburdening your Board can Cost you the Game
Overboarding is an issue that plagues many startups, especially those that are looking to secure venture capital (VC) funding. It can be caused by a number of factors, such as lack of focus or simply not having enough time, but the effect it has on performance can be disastrous. Not only is this behavior bad for startups, but it’s also detrimental to the board members themselves and puts them at risk of burnout. Large numbers of VCs on a startup’s board may even harm its overall success, according to research from Correlation Ventures. So how can you determine the right number of board seats for your company and make sure each one adds value?
When selecting members for your startup’s board, you need to treat it like any other job—hiring people with the skills and resources to serve your company according to your specific requirements. Having experienced investors on the team can be invaluable when solving complex problems or navigating tricky times. Still, if they become overstretched due to a large portfolio, then their abilities become compromised. Big names may look attractive for future funding opportunities, but if they don’t offer anything else, then they could end up hampering rather than helping your business.
One of the most famous examples of what happens when boards don’t pay close attention is the firm Theranos, which racked up millions in investments from venture capitalists before its fraudulent practices were revealed and descended into scandal. Uber and WeWork also recently fell foul of their inflated ambitions, lessons in how poor governance can lead to serious consequences for investors and founders alike.
Having knowledgeable professionals by your side is no doubt a great benefit for any startup looking to succeed in today’s competitive environment. Still, there must be careful consideration taken when appointing them – both with regard to their available time and expertise. As a company grows in size and success, fewer board members will be needed, while early-stage startups should look to employ more skilled individuals who are committed 100% to ensure the best outcomes possible.
Correlation Venture’s study went even further in demonstrating how too many VCs onboard can damage performance – figuring that startups with four or more VCs underperformed even when taking into account industry groups and investment stages – so striking the right balance between too little and too much is crucial. It must also be noted that companies without boards performed worst, however, so external guidance should always remain within reach where possible; balancing risks versus rewards is key here as being mindful of maintaining a good corporate culture with strong values running through it all.
In summary, while having experienced investors on hand for guidance can prove extremely beneficial for any growing business, taking the decision lightly could prove costly in the long run – true judgment lies in selecting individuals who align with your company’s core values yet still have enough time available to devote towards its development fully.