20150416 Board and Advisors: how to get real value

or „this ain‘t just you and your buddies anymore“

Board and Advisors: how to get real value

Agenda

Board of Directors

Advisors & Advisory Board

A few last words

Introduction & Strategy Introduction

Me

3

Career

Proprietary and confidential

NOT EXHAUSTIVE

Investor – venture and angel

IPO Sold IP

Sold Merged

Strive Capital provides a unique solution to app makers to scale their businesses

4

•  “Check“ size of $500k-1 mn fills gap between angels and VCs •  Institutional money easier to handle than a group of angels •  Lead and follow-on financing available through fund •  Compatible to syndication and subsequent funding from other

VCs •  Strategic LP partners are a default exit option, limiting downside

volatility

Capital

•  User management technology •  Storage & sync technology •  Monetisation technology, including mobile ad network •  Global cloud infrastructure and operations 24/7 •  Other resources from strategic LPs

Technology

•  Channel relationships with OEMs, chipset vendors and carriers •  Deep market access to JP, CN, IN, EU •  Business models for advertising and subscription •  Mobile industry insiders

Distribution


Capital

Technology

Distribution

Growth

Strive Capital is a „quant“ micro-VC that derives most of its deal flow from a proprietary analytics-engine

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Larger # of deals, any investment size

Smaller # of deals, smaller investment size

Angel VC

Traditional

Traditional

Strive Capital

Super angel

Micro-VCs create some of

highest returns in industry


Before we move on… “why should I listen to this guy on *this* topic?”

6 *Strive Capital also counts wiih the support of two Entrepreneurs-in-Residence in San Francisco and Tokyo Proprietary and confidential

•  Member of the Board of Directors of 10 companies – all in Tech •  Investor, Independent and Executive Board member experience •  Currently in 4 - 2 in SF and 2 in Portugal •  Advisor or consultant to 20+ Board of Directors of companies ranging from a

few Million to tens of Billion in market cap

Board experience

•  Advisory Board member to 5 companies – all in Tech •  Currently in 1 – I don‘t like being an advisor anymore...ask me why at the end

Advisor & Advisory Board experience

Agenda

Market Opportunity


A few last words

Introduction

Board of Directors

Let’s start at the beginning

8 Proprietary and confidential

“A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. (…) A board's activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These matters are typically detailed in the organization's bylaws. (…) Typical duties of boards of directors include: •  governing the organization by establishing broad policies and objectives; •  selecting, appointing, supporting and reviewing the performance of the chief executive; •  ensuring the availability of adequate financial resources; •  approving annual budgets; •  accounting to the stakeholders for the organization's performance; •  setting the salaries and compensation of company management”

What does the Board *not* do?

A taxonomy for the people attending your Board meeting


•  Key executives, e.g. CEO, COO, CPO •  Non-executive: •  Investors – representing their own personal investment, fund that has invested (VC, PE,

super angel fund, etc), or representing company/strategic investor •  Independent board members – normally „neutral“ parties that do not represent investors

nor are executives •  Other nomenclature: Inside (executives, investors) and Outside Directors (independent)

•  Q: Why do I sometimes see co-founders who are no longer executives still on the Board?

Board members

•  Company secretary / lawyer – for minutes and legal matters •  Board observer – normally representing smaller investor; does not have vote as Board

member, but... may still be an investor. Sometimes associate for fund with Board seat •  Other company executives – presentation and participation on specific topics •  „Outsiders“ – subject matter experts (e.g. advisors), other investor representatives, etc

Non Board members

Board structure… in general


„Birth“, through friends & family round... maybe angel round(s) •  No Board, or... •  Just co-founders/majority owners

After first „institutional“ money •  Most Boards are of 3-4 people •  1-2 Executives •  1 Lead Investor •  0-1 Independents

Time

Size Start-up through B, C... rounds •  Most Boards are of 5-6 people •  1-2 Executives •  2-3 Lead Investors •  0-1 Independents

“How about after ‘true’ growth rounds?”

Thoughts on Board composition


Only have executives that can really contribute at Board level: •  Not all co-founders need to be

Board members – consider ownership *and* contribution „will this person contribute on the governance of the company?“, „does he/she really need to be on the Board?“

•  Control matters, but your investors likely have special rights... anyway

•  Not static... execs change, ownership changes

Board of Directors

Only significant investors, which normally means: • Largest from last round • 1-2 from rounds

immediately before • ...investors do need to /

should leave the board (or stay as observers only) after they are no longer significant or as new investors may „ask“ for it/need extra board seats • Get the partner you want...

If you can

Independent members may be needed because..: • They have expertise that is

needed at Board level that no other board member could provide • New investor wants to

avoid that previous investors or the company executives have majority control in numbers... independent can act as „buffer“

Tips for successful Board meeting/call


•  Don‘t just show up for it... prepare „it“ •  Key action items from last Board meeting/call •  Items that *need* Board approval, normally governance related (note: in Portugal, some of

these items still need to go to Stockholders Meeting) •  Items that *should* have Board approval, e.g. strategic direction of the company, potential

significant resource allocations/reallocations, etc •  Risks that have emerged internally or externally – „cover my a$$“ •  Achievements for the business since last time – get credit •  Don‘t spend much time on beautiful presentations (or maybe only every 6 months or so),

but on content – except for financials, most can be in a memo •  Prepare your Board members •  Firstly, prepare your Chairman, if is not you. He/She will (likely) lead the meeting/call •  Share materials *before* the Board call/meeting •  Prepare other members individually *before* Board call or when major decisions need to be

made (if monthly, not needed before *every* single one) •  IMHO, only board members should attend the entire meeting... All the rest, „come in“ when

and only if absolutely needed and then „out“. Observers normally entire time, but do not vote •  Observers should represent smaller strategic shareholders, not „associates“ of fund

Typical Board Agenda


•  Approval of minutes from last meeting •  Items that *need* Board approval or oversight •  Financials and capital needs •  Other governance items – option grants for approval, major deals & partnerships, etc •  Strategic discussion •  Summary update since last meeting – tops and flops, or other construct •  Customer/User-side metrics, e.g. customer/sales pipeline in enterprise companies, user

traction/retention/engagement in consumer companies •  People/team – hires, fires, changes •  Product evolution, plans/roadmap •  High-level strategic discussion – vision, strategic objectives (every once in a while, but

certainly not every call/meeting) •  Any items that have significant risk or have come up – IP issues, trademark, etc •  AOB (any other business) – normally to let others raise points that they want to make ...

Normally, minor points, otherwise should be a topic on its own right •  Book next Board meeting/call – some companies do this upfront on an annual or semi-annual

basis; others do it at end of each Board meeting/call

NOT EXHAUSTIVE

Tips on how to manage your Board


•  Respect and nurture your board members •  Not your buddies and will sometimes not agree with you and show that in their decisions.

This is not always bad, because... you are not always right!!! •  Always listen to them and then... decide whether to pursue their recommendation or not •  Socialize beyond the Board room and get to know them, their aspirations and current

focus; with investors, understand what is going on with their Firm

•  *Do* get value out of them •  Prepare them the best you can for the meetings / calls you need to have – make sure you

share context •  Engage them on their areas of expertise outside of the Boardroom, like you would do with

advisors or, even in some cases, with consultants •  Access their network of connections in a wise-way – specific on who/what company to

engage; make sure the intro needs to be „now“ •  One size does *not* fit all: customize your approach to each board member. Every single

one of them will likely be very different in what they want and what they can give back •  Use independent members or more „neutral“ investor members as buffer when issue arises

with other board member, investor/investors, etc

Agenda

Board of Directors

Past Performance & Portfolio

A few last words

Introduction


What advisors are *not*


•  Consultants •  Consultants would normally fulfill a role the company cannot or does not want

to hire for at this stage – specialized area of engineering or ops, PR, HR, etc •  Duration of engagement is normally in weeks or a few months •  Engagement intensity is significant – 1-day a week, all the way to full-time •  That said many confuse advisor with consultant… an advisor does not fulfill a

role, he helps with a need

•  Board members •  Board members are responsible for overseeing the whole company •  While they may have expertise and specialties, they also have responsibilities

(e.g. legal) and “a say” (now ask me why I don’t like to be an advisor) •  Normally has a 2-3 year mandate, which is likely longer than an advisor

What advisors *are*


•  Specialists, or even experts, in a specific functional area (e.g. data science/analytics) or more broadly across several areas (e.g. business development, product) within the industry the company is in, in which it needs help on

•  Support for employees/functions company already has – or is in process of having/hiring – that work/will work on the subject the advisor will help on (could be CEO)

•  Medium-term helpers, normally with mandates of 1-2 years, but with light intensity of engagement, e.g. normally once a month or thereabouts on average

•  Very experienced in an area of knowledge, an industry, or running a company… not just bright / intelligent people

•  People you would likely hire, were it not for their own current career preferences or your own limited resources (normally money)

Tips on how to best engage an advisor


•  Be very specific in your discussions with a potential advisor on what you expect from him/her, e.g. if you want him/her to “open doors”, ask explicitly if he/she would be willing to do it, to what extent and how

•  Define some high-level objectives together with him/her; these will *not* be KPIs with ranges attached to them or end up in an SLA

•  Also understand well why he/she is interested in you and what is expected from you / your company – not just money, big upside in case of successful exit, etc – but what other type of upside (e.g. knowledge, networking with others on your advisory board or board) do they expect to get from the relationship

It is more common to underutilize an advisor / advisory board member than to overutilize him/her

“When do I need or should have an advisory board?”


Agenda

Board of Directors


Competitive Advantages

Introduction

A few last words

Typical terms up for discussion


•  Object of contract •  Expected role, support, etc •  Length of engagement •  Renewal conditions

•  Remuneration •  Amount •  Payment terms – monthly, quarterly? •  Currency of payment – EUR, USD, other •  To whom – person himself/herself or a company (services agreement)

•  Options (or, at times, Stock grants) •  Percentage of company •  Out of what? Fully diluted cap table, pre-dilution? •  Strike price … and no, it’s not as simple as doing last VC round price per share •  Vesting period •  Accelerated vesting? Triggers? •  Other conditions – tag along, drag along, etc

•  Expenses •  Others – IP assignation, invention rights, etc

NOT EXHAUSTIVE

Before we go…


•  There are no “free lunches” •  While Executive Board members or investor board members normally do not get

anything to be on your board… •  Independent Board members (almost) always get options (or even stock, more rarely) in

your company and can get a remuneration as well (practices vary) •  Equally Advisors and Advisory Board members will get options (or even stock; normally

less than an independent board member). They may get remuneration, although in some cases their involvement may be “cash-free”

•  You get what you put in… or rather “garbage in-garbage out” •  If you do not prepare well your board members and your advisors, their view on

company will be limited and it may influence their immediate and future decisions, e.g. investor board member decides not to follow-on in next round

•  If you do not ask for specific things, you will not get specific things; if you are not open and frank, they will not be open and frank; and so on and so forth

•  While you would like to get as much as you can for no cash, sometimes you need to put “skin in the game” to get real commitment from these people you want to work with – your judgment call and then part of negotiation

And finally…


But most of all, figure out YOUR OWN RULES

Understand best-practices

Surround yourself with talented advisors and board members… that you can work with

Don’t be stingy…

… but also don’t give too much away, too soon

Board and advisors: how to get real value or „this ain‘t just you and your buddies anymore“

Small Business & Entrepreneurship

20150416 Board and Advisors: how to get real value