Startup boards explained and tips to manage your board

Having a strong board of directors on your side can help you as a startup founder. Your board can open doors to new connections and help make company decisions to guide you towards success.

In this article, we’ll explain how to set up a startup board, understand its responsibilities and what to pay your board members (if anything at all).

What is a startup’s board of directors?

A startup’s board of directors is a group of people who help guide the company’s direction and make key decisions. They oversee corporate governance and support the founders in growing the business. A board of directors ideally has a diverse set of skills, expertise and industry knowledge relevant to the startup.

Every company must have at least one director – when you set up a company, you decide who your director(s) will be. If you’re just a solo founder at the moment, don’t worry – a board can consist of just one director. You can then add to your startup’s board as your company grows.

Startup boards have to agree on some major company decisions. To reach an agreement, the board of directors can get together and decide on something by majority vote (called a board meeting). Or they can provide written consent without a meeting if they agree on something unanimously.

You can also give some board duties to a specific director or a group of directors. For example, financial tasks are often handled by the chief financial officer (CFO). If a director is given the power to do something – like sign supply contracts – the board of directors doesn’t need to meet or give consent every time the company needs a new contract. The director with the authority can go ahead and make decisions within their assigned role.

Who should be on a startup’s board of directors?

Do all founders get a seat on the board of directors?

At SeedLegals, we recommend that if there are just two or three founders, you all have a seat on the board. Why? Well, because founders are more invested in the running and success of the company than outsiders and usually have more stock than anyone else. When founders are made board directors, they have the ability to shape the company and they’re in the best position to do so because they’re immersed in the day-to-day of the company.

But, if there are four or more founders, not everyone needs to be part of the board. At that stage, we recommend those founders with the largest stockholding should have a board seat.

Should investors be on your startup’s board of directors?

When you raise startup funding from VC investors, the lead investor from your funding round will usually ask for a seat on the board. Investors generally ask for a board seat so that they can have a say in company decisions and the strategic direction of the company. Think carefully when selecting investor directors and consider things like how much value they’ll add, the stage of your company, and the way the board’s set up.

What are the board’s responsibilities?

A board of directors is responsible for governing the company, making decisions and guiding the company’s strategic direction. They must act in the best interests of all the company’s stakeholders (its stockholders, employees, investors, customers, suppliers, community, etc) and uphold high standards of corporate responsibility.

Their responsibilities are:

• representing stakeholder interests
• setting the long-term goals
• aligning company actions with its mission
• creating growth opportunities and mitigating risks
• advising and holding management accountable
• deciding executive salaries and stock options
• appointing the executive team
• safeguarding company assets and ensuring compliance
• fostering transparency and accountability

Overall, the startup board is responsible for guiding the company towards sustainable growth and success while upholding the principles of good corporate governance and ethical business practices.

How much should startup board members be paid?

It’s not always a given that board members should receive cash payments. Some may do the job voluntarily, particularly if they share the company’s values.

But paying startup board members could be important in attracting experienced people who can provide valuable guidance.

Startups can offer equity or cash. Early-stage companies often rely on equity, while later-stage startups may introduce cash payments.

Here’s a general breakdown of our thoughts plus some figures from the Corporate Governance Institue:

• Equity: Early on, board members are often compensated with equity, which ties their financial reward to the company’s success. It can be tough to know how much equity to offer, though. To figure this out, start with your company’s valuation. For instance, if your most recent valuation was $10 million and you value a board member’s time at $20,000 a year, that’s 0.2% in equity. This approach keeps things clear and avoids guessing percentages. Also, make sure any equity offered to directors vests over time, which means they remain committed.
• Per-meeting fees: Once cash payments begin, board members may receive $1,500 to $3,000 per meeting, plus travel and accommodation reimbursement​.
• Retainer fees: Sometimes, annual retainers of $5,000 to $10,000 are offered to directors to encourage long-term commitment​.

How do you run a startup’s board meetings?

There’s no minimum number of board meetings prescribed by law – directors should meet often enough to make sure that they are meeting their obligations and duties.

It’s common for startups to meet at least once a year to run an annual review of the company’s progress against high-level targets.

What are some top tips for effective board management?

So what does good look like when it comes to building a brilliant startup board of directors? Here are our top tips 👇

Define clear roles and responsibilities

Establish clear roles and responsibilities for each board member. This includes setting the board’s purpose, outlining individual duties, and establishing expectations for participation and contribution.

Share risk and reward

Make risky decisions together and share responsibility for them. Govern the company well and share in its success.

Encourage open communication

Create an environment where directors feel comfortable expressing their opinions, discussing challenges and offering constructive feedback.

Set strategic objectives

Work collaboratively to define the company’s strategic objectives and long-term vision. Regularly revisit and update these goals to align with market trends and the company’s performance.

Conduct board training

Invest in board training and development to make sure directors are well-informed about the industry, market dynamics, and regulatory changes. Continuous education helps them make informed decisions and remain effective in their roles.

Promote diversity and inclusion

Strive for a diverse board that includes directors from different backgrounds, experiences and expertise. A diverse board enhances creativity, better decision-making and a broader understanding of stakeholders’ perspectives.

Assess performance

Regularly conduct board evaluations to assess individual and collective performance. Use the findings to identify areas of improvement and tailor development plans for the board as a whole.

Encourage agile decision-making by swiftly responding to opportunities and challenges. Avoid lengthy bureaucratic processes that could limit the company’s ability to adapt to changing market conditions.

Focus on long-term value

Avoid short-term thinking and focus on creating sustainable long-term value for the company and its stakeholders. Make decisions that align with the company’s overall mission and strategic goals.

Use software to boost efficiency

You can use board management software that helps you stay organized and save time. These can allow you to:

• set and share your board meeting agenda
• record your discussion and document board minutes
• add outcomes to agenda items (recording what’s approved or not)
• sign board minutes digitally
• add and remove directors
• change the details of directors

… so it could be useful to your business!