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Examining the Impact of Startup-Investor Relationships on Board Seats

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Startups can benefit from an independent board of directors that can provide expert knowledge and fresh perspectives that propel their growth. Unfortunately, finding suitable board members may be difficult for startup CEOs. Get the Best information about Startup.

Venture-backed startups often give new investors seats on the board of directors in exchange for investments, and these investor directors are usually the largest group.

Founders’ Personality Types

Personality types of founders are essential to their success as startup CEOs, and their traits dictate how they treat board members. A founder with high levels of conscientiousness or diligence tends to be organized and reliable; however, in the competitive technology startup world, where ambitious founders sometimes exhibit more Machiavellian tendencies, this trait can become overwhelming.

These founders often fail to consider revenue growth and product-market fit when making decisions – trusting that their technical hacks and roadmap changes will address these problems automatically. According to Forbes Daily, their narcissistic tendencies could even cause them to mistreat employees,

Extraverted founders typically enjoy spending time with others and taking risks quickly. Unfortunately, their extraversion can become an obstacle in the boardroom, where they may overeagerly pitch their ideas or overstate their achievements, potentially turning off investors and diverting focus from the core mission.

Founders’ Networks

As founders start their businesses, they often lack the experience or resources to develop them into viable enterprises. So when problems arise, they turn to fellow founders for support; joining networking groups helps solve them faster while giving peers, coaches, and mentors somewhere safe to vent their concerns.

After raising capital from angel investors or venture capital firms, entrepreneurs raise additional funding from angel investors or venture capital firms; typically, this requires giving up some control of their business to these investors, though confident investors, such as Y Combinator, allow entrepreneurs to retain more control than others.

Investors can still have a significant impact regardless of the share they take in an equity stake in a startup. When raising initial funding rounds, it is not unusual for an investor to set conditions that affect company growth and use their networks to syndicate investments – pooling money with other funds that share similar interests – to reach higher valuations with reduced risk of unnecessary founder dilution.

Founders’ Experience

As startups expand and mature, they often require adding to their management team to help meet various operating goals. These may include setting product development roadmaps, sales strategies, operations initiatives, or finance plans.

Early-stage board members are usually selected from investors’ existing networks of startup executives or angel investors who have invested in a venture. Therefore, it is vitally essential that founders convey their business vision to prospective board members.

Founders who prioritize wealth over control tend to reject deals that could reduce their management control and work with their boards on post-succession roles for themselves. By contrast, those focused on control may allow their desire to run the company to sway them into accepting deals that decrease their ownership stake.

Founders’ Reputation

Entrepreneurs frequently discover that their financial resources and ability to motivate people alone aren’t sufficient to leverage opportunities presented by their ventures fully. So they look for investors such as family, friends, or venture capital firms for cash support – though the price for doing so may include relinquishing control of their enterprises.

Investors tend to maintain control of their investments by dispensing funds in multiple rounds, which reduces founder equity and expands board roles, thus increasing the likelihood that outsiders will eventually gain managerial control of the startup.

Establishing a competent board that understands how to deal with power imbalances is paramount to any startup’s health and success. A competent board can bring customer insight, technical knowledge, networks, and coaching support that accelerate product development toward product-market fit faster. In addition, protective provisions help prevent outsiders from exploiting founders too efficiently.

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