Robin Lincoln, Portfolio Director, Oxford Capital
One of our most important roles as a seed stage investor is to help our portfolio companies establish the right foundations from the outset to build stronger businesses. As an investor, I really believe in the need to build effective teams around the founder and often the board is a great place to start.
The VCs role in advising on board structure
VC investors generally have a lot of experience of creating effective boards and wider support groups. They will have seen both what works well, and the pitfalls to watch out for. We encourage founders to listen carefully to advice on offer here. In fact, part of the selection process for a founder to figure out which VC to work with should be how a VC demonstrates their experience in advising on board structures.
Getting the foundations right
Opinion varies across both the VC and startup community about the right time to expand the board, for example bringing in an independent, experienced Chair. Some may see this as unnecessary distraction, not required until a business is much bigger – others will see it is must-have right from the start. It would be wrong to say one solution works for all companies. Early-stage startups come in all shapes and sizes and we listen carefully to the culture and individual requirements of each company. Personally, at Oxford Capital we have seen time and again that an independent Chair is almost always a force for good, so we encourage companies to seek one from the earliest possible stage.
Experienced and independent guidance to keep an entrepreneur on the right track and focused on the bigger picture is an invaluable part of the coach aspect of a Chair’s role. As is that of mentor to share their experience in a safe setting. Taking on multiple investors can create conflicting demands on a founders time. Again, a good Chair will lift the burden off the founder and create an impartial but effective bridge between investors and the company. Ultimately, the goal is to create the space for the entrepreneur to realise the maximum potential for the business.
The changing role of an independent chair as the business matures
While we believe a Chair should be appointed from the moment a company brings in external investors, the role is not static. As the business grows, the requirements for a Chair should be reviewed regularly to ensure their experience and expertise meets the needs of the business.
Any business will likely have growing pains. An effective Chair can play a crucial role in facilitating and delivering on difficult decisions. To that effect, it can be a bit like an insurance policy – you might not need it when everything is fine, but when things aren’t fine, you’ll be damn glad you had it.
In addition, we also consider the possible inclusion of Non-Executive Directors (NEDs) to fulfil specific needs within a company where there may be skills gaps within a senior team. For example, several of our own portfolio companies have brought in experienced brand and marketing NEDs to offer a fresh perspective and elevate the reach and profile of their brands.
The rise of ESG
The importance of ESG (Environmental, Social, and Governance) factors is increasingly moving from nice-to-have to must-have for investors. Even at start up level, many investors will expect scaled back consideration of these factors. A Chair solves most of the Governance piece upfront and is well placed to help scale these functions appropriately, given they will likely have seen wider implementations elsewhere.
How to hire a great Chair
As VCs we have very broad networks of contacts that can support the recruitment of an independent Chair/NEDs and we gladly share these with our portfolio companies. In addition to recommending specialist headhunters, which we work with regularly, we also work our portfolio network to produce NED and Chair recommendations. There is a growing variety of technological solutions to help facilitate this process too. We regularly work with management teams on scoping documents, job specifications, shortlists, assessments, contracts and references to ensure the optimum person is selected.
It needs to be more than chemistry
Clearly, a chair will need to get on well with a founder – they must trust and respect each other. But in the past, too often a Chair selection was solely about chemistry ‘fit’. Unchecked, this can lead to missing out on a lot of the benefits of an independent Chair. Diversity of thought across a board can be of great value and the Chair’s role to effectively lead and umpire a healthy debate and discussion is much valued.
Ultimately, founding and growing a business can be one of the most rewarding yet challenging of human endeavors. Yet it famously can be a long and lonely journey. Building the right support team can be the key to success and we believe a Chair is an opportunity to build strong foundations right from the start.