Mads Jensen argues that a decade of cheap capital made venture board governance slack, with investors bearing most of the blame, and that boards should help founders get clarity on objectives, challenges, strategy, plans and KPIs.
- The prevailing view had been to give founders maximum latitude and avoid board governance, helped by a decade of low interest rates and nearly free capital.
- Boards were absent at FTX and misled at Theranos, but the wider problem is boards that exist yet do not do their job.
- The author places most of the blame on investors, saying cheques with no strings attached serve no one, least of all founders.
- Symptoms of sloppy board work include unclear objectives, woolly strategy and a lack of transparent reporting.
- Good boards ensure clarity on objectives, challenges, strategic principles, a coherent plan of action and KPIs.
Venture-backed tech companies don’t need board governance
..seems to have been frequent wisdom over the past few years.
Rather, the idea has often been to give founders maximum latitude to experiment and build.
And why not? After all, building a successful tech company is unreasonably hard. So hard, in fact, that it seems only superhuman entrepreneurs can do this.
In other words: the last thing founders need is a bunch of biscuit-eating suits holding them back. Or boards asking for a bajillion ESG reports on employee water consumption.
And wasn’t Steve Jobs, the grand supremo of entrepreneurs, fired by his own board? Only to be replaced by John Sculley. Someone with a deep understanding of how to.. eeek.. market soft drinks? Jeez.
Besides, we have had a decade with low interest rates and “almost free” capital. If things didn’t work out, you could always raise another round.
So there. “No board governance for me, please”, seems to have been the logic.
When it goes wrong
But it’s not always gone well.
There are plenty of examples where boards either were non-existent (FTX). Or were misled (Theranos).
So fraud is an issue. But it’s not just fraud that’s causing problems.
I am talking about something else here. Namely when the boards are there, but not quite doing their job.
Turns out a decade+ of “free money” has made our ecosystem slack.
- Too many founders preferred not to be held accountable.
- Too many investors were comfortable cheerleading from the sidelines.
- Or didn’t know how to add value, even if they wanted to.
It’s easy to blame the founders. But I think investors bear the brunt of the blame. Writing cheques with no strings attached serves no one. Least of all the founders we are trying to support.
Most of us have been guilty of sloppy board work. What are some of the symptoms?
Unclear objectives.
Wolly strategy.
Lack of transparent reporting.
How to get it right
So how do boards provide proper governance?
By ensuring clarity on the following
- objectives
- challenges
- strategic principles
- coherent plan of action
- KPIs to track
Company management (led by the founders) is responsible for putting the plans together. But for first-time founders, it’s not always clear how.
They deserve good boards to help them figure this out. And to ask the hard questions if the plan isn’t clear.
It’s time for all of us to roll up our sleeves and get stuck into the board work. Because when done right, it can add a lot of value. Also for tech startups.
Frequently Asked Questions
Do venture-backed startups need proper board governance?
Yes, according to Mads Jensen. He argues that years of free money made the ecosystem slack, and that good boards add real value by helping founders get clarity and asking hard questions when a plan is unclear.
What should a startup board focus on?
Ensuring clarity on the company's objectives, challenges, strategic principles, a coherent plan of action and the KPIs to track.
Who is responsible for a startup's plan, the founders or the board?
Management, led by the founders, is responsible for putting the plans together. The board's role is to help, especially first-time founders, and to challenge the plan where it isn't clear.