US Corporate Law 20 Episodes (13)

What if every investor asks me for a board seat? Should the board be odd or even?

How are the board seats allocated | What if every investor asks me for a board seat? I want to talk to the board of directors who helped me a lot | How many people should there be on the board? Should the board be odd or even? The difference between board of director and advisory board

In the last issue, we talked about how much shares should be given to investors when a startup company takes investment. In this issue, let's talk about a concept that is as important as shares, but often overlooked, namely board seats.

Many entrepreneurs have no concept not only about the value of shares, but also the value of board seats. I have even heard many times that some entrepreneurs will take board seats to thank someone who has helped a lot.

Brother, you are a board seat, not an honorary doctorate. The board of directors has real power, and its real power has more influence than the shareholders' meeting to a certain extent. The board of directors is only needed when the shareholders' meeting is held once a year or when the company has major events. However, the board of directors is different. A company’s medium-importance decision requires a vote from the board of directors. This kind of medium-importance time may take three or five times a year for a short period of time, and a dozen or twenty times a year for a long period of time. If you find someone to be thankful for to make such an important decision, that's really taking entrepreneurship as a child's play.

In addition to this kind of grateful person, there is another kind of blindly ceding board seats to investors. Every investor will ask the entrepreneur for a board seat, but if someone else wants it, you don't necessarily have to give it.

Unlike shareholders who vote by the number of shares, the board of directors votes by head. Although there is no legal requirement that the number of people on the board of directors must be singular, companies with a little legal concept in real life will set the board of directors to be singular. If there are two people, every time you vote, 1:1, don't do anything.

The board needs to be an odd number, which means that every time you add a board member, you add two at a time. There is a lot of knowledge here.

When a company is first established, it only needs to have one director. If you set up 3 directors at the beginning, then the number of investors in the first round will become 5, and the number of investors in the second round will become 7. Generally listed companies only have 9 to 15 directors. In order to get two rounds of financing out of seven directors. The company does nothing else every day, and all are raising their hands. Moreover, American companies often use written resolutions of the board of directors, which require unanimous consent, that is, unanimous consent. That is, every time something is voted, all these people must sign a circle. Once every two or three months, the company doesn't do anything.

Try not to give board seats during the seed round. Most seed investors will also ask you for a board seat, but don't give it if you can. If the seed round is given, then the board will become 3 after the seed round, 5 after the A round, and 7 after the B round. There are also cases where companies have too many boards when they are still relatively young.

Optimum board setup structure. When the company was first established, as long as there was one director, he was the main founder. When the seed round investors come in, the board is not added. When a Series A investor comes in, accept a Series A investor to the board, and match someone on the founding team. That is to say, after the A round, the founding team will occupy two seats and the investors will occupy one seat. After the B round, accept another B round investor to the board of directors, and at the same time match a person in the founding team. That is to say, after the B round, the founding team occupies three seats, and the A and B round investors occupy two seats in total. And so on after that. In this way, the founding team can always be in a state of a seat. Some people may ask, if one of the founding team falls to the investor, the founding team will also lose the majority in the voting. But on the other hand, I want to ask you, if there are such two-hearted people in your founding team, can your company still run well?

Profits can't be small, and profits can't be crowded. The board of directors is definitely not an honorary seat, but the most important body for daily decision-making. Even to a certain extent, the decisions of the board of directors are more likely to affect the development of the company than the decisions of the shareholders' meeting. The smaller the number, the more efficient the decision-making. With a large number of people, even if the board is full of elites, your company is half the battle.

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