FiBAN - Business Angels in startup boards - By Bill Payne


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FiBAN - Business Angels in startup boards - By Bill Payne

  1. 1. ANGELS IN STARTUP BOARDS Helsinki , May 9, 2012 BILL PAYNE Boardman, SpringBoard2012
  2. 2. Bill Payne is an active angel investor, board member, and advisor to entrepreneurs.He assisted in founding four angel groups: the Frontier Angel Fund (2005), TechCoast Angels (San Diego – 2000), Vegas Valley Angels (2003) and Aztec VentureNetwork (1999).For three decades, Bill Payne has successfully founded or invested in over 50 start-up companies. He served as an Entrepreneur-in-Residence to the KauffmanFoundation for twelve years. While there, he directed the development of thePower of Angel Investing education series for entrepreneurs and angel investors.He has served as lead instructor for over 100 seminars in seven countries.He has over 120 man-years of service on private and not-for-profit boards ofdirectorsIn 2009, Bill was named the Hans Severiens Award winner as the “outstanding angelinvestor in America.”
  3. 3. AGENDA • Board make-up • Chairman • Workings • Important stuff • Federal Regulations • Intense stuff
  4. 4. DISCLAIMER • Experience is private board director in the US • US angels specify board makeup in investment term sheets • No experience in non-US boards • Experience may be of limited value
  5. 5. Prior to Engagement of Angels• Prototype completed, one or two customers• Probably incorporated• Board status o None o Mom, Aunt Martha and the dog o Several partner/employees o Disorganized, dysfunctional o Perception of power and control
  6. 6. When Angels Engage• Invest $150K to $1 million• 20-40% ownership• Often preferred shares• Term sheet dictates o Valuation o Capitalization Table o Terms of deal o Definition of board of directors
  7. 7. Typical Startup Board IssuesBoard of Directors Make-up• Entrepreneur – only employee/director• Small at start o Entrepreneur, investors, vertical expert o Size tends to increase over time  New investors  Growth spawns expanded needs• Normally an odd number
  8. 8. Typical Startup Board IssuesChairman• Often a problem o Entrepreneur views chair as position of power o Entrepreneur has no prior experience o Board has serious fiduciary responsibilities• Best option for Chair o Explain importance of fiduciary duties o Position chair in administrative role o Select most experienced director as chair o Provide administrative support, if necessary
  9. 9. Typical Startup Board IssuesBoard of Directors Workings• Meet monthly (or weekly) while burning cash• Less frequent meetings as company matures• Discourage telephonic participation (except in emergencies)
  10. 10. Typical Startup Board IssuesBoard of Directors Workings• Constantly seek alignment• Remind directors: Do not represent just specific investor classes• Observers• Rotation• Setting the Agenda
  11. 11. Typical Startup Board IssuesImportant Stuff• Board compensation o Large investors o Small investors o Vertical experts o Employees• D&O Insurance• Pricing options
  12. 12. Typical Startup Board IssuesRegulatory Issues• Audited financial reports• Crowd funding issues• Preserving status as private company o Maximum number of shareholders o Other regulatory issues o Makeup of Board of Directors  Outside directors  Status of chairman• Issues to going public
  13. 13. Typical Startup Board IssuesThe Intense Stuff• Replacing the entrepreneur as CEO o Very intense, emotional transition o Requires substantial advanced planning• Soliciting more funding o Usually requires heavy board involvement o Existing angel/directors obligated to invest• Facilitating the Exit o Timing is a strategic issue o Board involvement in timing and execution critical
  14. 14. MORE