Ryan Caldbeck's site

While there are good board members and bad board members, in general I loved having a board of directors. I found board interactions to be a great opportunity to bring in valuable insights and questions from smart, experienced people who were (largely) similarly incentivized to grow the business. It was an opportunity to pull at least the executive team out of day-to-day execution and to think about higher-level strategic issues. It was also an opportunity to showcase talent throughout the company and give them step-up opportunities. 

In my experience, independent directors helped to enrich those conversations and improved overall board dynamics. Finding them, however, is a bit of an opaque process with which few first-time CEOs are familiar. 

Why do you want to add an independent board member?

To be clear, not everyone agrees that a startup should have an independent. However, I found that an independent director, even at the earlier stages of a startup’s life, provided diversity of thought and breadth of experience that made the dialogue much richer. As importantly, a strong independent director can help to unlock conversations that might naturally get stuck between the same two parties (i.e. an investor and a founder). 

The independent can also facilitate clearer direct feedback to both the founders and investors. Even experienced investors are sometimes hesitant to provide that feedback, and there is certainly reluctance amongst many founders to feed back to the investors. Often, VCs are also reluctant to disagree with each other in meetings for fear of damaging the future relationship (reminder: VC is a repeated game with each other, but their investment in you is likely not). I sometimes had VCs call me after board meetings to make points that they didn’t feel comfortable making in the session, in part because they contradicted those of another VC. 

In addition to opening lines of clearer communication, some independents that I have worked with have been excellent thought partners both in and outside of meetings. A great independent director can be extremely beneficial to the board, but if the board is solely composed of investors and independents, the dynamics are suboptimal (as Fred Wilson discusses here). 

When should you add an independent board member?

You’ll hear different perspectives, but I find having an independent board member is useful for most startups starting around the Series A. Before the A, the problems and opportunities are so different from the rest of the journey that few independents will be able to help meaningfully. After the A, there is typically a formalized board, institutional investors and the founders are just beginning to think about longer-term strategic issues. Of course this depends on the traction of the company and other factors.

How do you find and add an independent director?

I love Elad Gil’s recommendation of writing a job description for the independent. I always find that writing down the North Star of a project or hire helps to ensure alignment on the goal. Are you keen to bring in a former founder? Or perhaps someone from the industry or a specific functional area that will be relevant to the company for the next few years. (I liked the personas that Jeff Stump and Shannon Barbour list here.) I prefer having independents who have the following traits and experience:

-They have built: Having operators, particularly founders and CEOs, on the board who understand and can empathize with the rollercoaster is amazingly valuable. Shoot for someone who has built something/is building something that looks 5-8 years ahead of where you are. If it’s too far ahead of that, they may not be able to relate to your more immediate struggles. 

-You trust the independent: If you have even an inkling of mistrust, don’t bring the independent on. Think through the components of this trust equation. Is the person reliable? Credible? Are you willing to be vulnerable with each other? Are you able to have open conversations about the topics you care about most? You should test all of these things out during the dating phase. If you invite them to join a board meeting, you can also ascertain how engaged they are during and in between meetings and whether they focus their input on areas in which they have specific credibility.

-The board trusts the independent: The independent can’t be in the pocket of the VCs. But they can’t be more aligned with you either. They need to be able to build trust with all members as a truly independent party. 

-They are willing to share their opinion openly: I really don’t like when a board member is only willing to give their honest opinion in private. A great independent will share their opinion and encourage others to do the same. I liked a16z’s view of “sharp opinion” for a board member. 

Now you have a job description for the role and have aligned with key stakeholders (i.e. the board). The next phase is to go and find the independent. Show the JD to founders you respect. VCs tend to be hyper-connected, but you may want to avoid getting recommendations from your existing investors for fear of potential conflict with the independent. Consider asking VCs who are friends and perhaps do some of your own research given the JD. Exploring groups like Boardlist will also help to add some diversity to your search.

In your conversations with the candidates, remember it is an important two-way decision. This is not an interview. Neither of you should contort yourselves to close the deal. Be open and transparent about both your own working style and the performance of the company. Is there alignment on mission, vision and values? Do they show an interest in those things, or are they instead gravitating towards valuation, the investors’ profiles and financial outcome? Try talking about both strategic and tactical issues to see how they engage. In between your meetings, are they as reliable and responsive as you would like them to be? While this is an incredibly important decision, it is not an urgent one — take your time. 

In terms of compensation, I wish there were more resources for these benchmarks. Of those I’ve seen, I liked Fred Wilson’s the most.

Did you just lose control of the board?

A few companies have asked me recently to join their board as an independent. One raised a concern that I sometimes hear: “Will we lose control of the board if we add an independent?” 

I think voting control at board level is massively over-valued by founders. In my twenty years of being involved with boards, I don’t think I’ve ever seen something truly come down to a vote. Yes, it happens, and when it does it’s ugly as your lawyer will point out. But more common is that things get really ugly without a vote. An investor with 1 vote and minority rights can still cause tremendous pain. I’ve seen it. After having done reference checks on the independent, I think focusing on mission/vision/values alignment is a lot more valuable than maintaining voting control.

Having said that, you can look to maintain voting control in other ways, including giving yourself and your co-founder super-votes — i.e. you each have 2 votes while each investor has 1. 

How to manage the board?

I’ve been on boards as a founder, investor and independent. Here is what I wish I had known in forming my own board. 

Wait… what about web3? 

Yeah… most crypto companies don’t have boards. There are several reasons for that, including the decentralized ethos of web3 and because those companies/projects that have tokens (or will have tokens) worry that a board compensated in liquid tokens will be misaligned with the company’s desire to build for the long term. Frankly, I personally think that’s a shame and hope that over time more web3 companies have boards. I know that’s blasphemous to many crypto enthusiasts (I count myself as one), but I found a lot of value as a CEO and a builder to have a board.