The document discusses the importance of independent board members for startups. It notes that founder ownership decreases with each funding round while investor ownership increases. By Series C, investors typically control the board. The best boards have independent directors who take a broader view than investors. However, only 40% of Series B companies have independent board members. The document recommends that founders add independent directors as early as the Series A round. An independent director can advise the CEO and build strong relationships between the CEO and board while serving as an impartial representative. Careful selection of independent board members is as important as hiring key executives.

1. Confidential
WUNDERVC
The Independent Board Member
– Early Stage Startups
Christian Dahlen, July 2023

2. Confidential
WUNDERVC 2
Startup founder ownership decreases with each round and
investors frequently own the majority of shares at Series B
Stage Idea Series
Pre Seed
Series
Seed
Series
A
Series
B
Series
C
Founder ownership 100% 90% 75% 55% 35% 25%
Years since founding 0 2 3 4.5 6 8
EXAMPLE

3. Confidential
WUNDERVC 3
The board of directors is controlled by investors no later than
Series C and often earlier
Seed Stage
• 1 Seed investor
• 2 co-founders
Series A
• 1 Series A VC
• 1 Seed investor
• 2 co-founders
Series B
• 1 Series B VC
• 1 Series A VC
• 2 co-founders
Series C
• 1 Series C VC
• 1 Series B VC
• 1 Series A VC
• 1 to 2 co-founders
EXAMPLE

4. Confidential
WUNDERVC 4
Investors have their own set of interests, but the best boards
are independent
It is the rare investor who takes a broader
and more holistic view of the company. So
while investor directors are a necessary evil
in many companies, they should not
dominate or control the board.
An investor controlled board can be the
worst possible situation. Investors can have
a narrow set of interests that involve how
much money they are going to make (or
lose) on their investment.
Boards that are full of vested interests are
not good boards.
The founder should control the
board,
and independent directors should
control a board where the founder
does not control the company.
The more independent minded
the board becomes, the better it
usually serves all shareholders.

5. Confidential
WUNDERVC
Duty of loyalty is the most paramount fiduciary duty board
members have to their shareholders
5
1. Duty of Loyalty
You must place the interests of the organization /
shareholders above your own.
2. Duty of Care
You must act as a reasonable and prudent person would
under the same circumstances.
3. Duty of Candor
You must disclose material facts in a timely manner,
either about yourself or about the company.
4. Duty of Confidentiality
You must not disclose sensitive or confidential
information.

6. Confidential
WUNDERVC 6
Independent director positions are often left vacant
• The independent director is one of the most important
people the founder ‘hires’
• Shareholders Agreements often – but not always - provide
for an independent director as part of the board.
Unfortunately, this effort is often deferred, especially early
in the life of a company. The seat is often left empty due to
the excitement of the new relationship, the hurry to get the
product out, or the lack of understanding of the value of
an outside director
• Founders and investors should invest the time and effort to
identify the right independent board member and bring
them on board as soon as feasible

7. Confidential
WUNDERVC 7
Only 40% of Series B boards have an independent director

8. Confidential
WUNDERVC 8
Founders should add external, independent directors as
early as Series A
Seed Stage
• 1 Seed investor
• 2 co-founders
Series A
• 1 Series A VC
• 1 Seed investor
• 2 co-founders
Series B
• 1 Series B VC
• 1 Series A VC
• 2 co-founders
Series C
• 1 Series C VC
• 1 Series B VC
• 1 Series A VC
• 1 to 2 co-founders
EXAMPLE
1 independent
director
1 independent
director
1-2 independent
directors

9. Confidential
WUNDERVC 9
The CEO relationship is the basis for the independent
director’s role
First line adviser when things
aren’t going well – ‘the first call’
Non-judgmental sounding
board for early ideas
Adviser to the CEO
on HR issues
Reviewer of initial
compensation
proposals for the
management team

10. Confidential
WUNDERVC 10
An independent director helps build a strong relationship
between the CEO and the board
No other duties other than
those to the company, its
management team, and
its shareholders since they
are not big investors
The independent director’s combination of independence and knowledge brings a
different type of guidance to the startup’s team, but also helps to build a strong relationship
between the CEO and board as a whole
No limited partners to
report back to or any
other type of investment
agenda, unlike the
investors on the board
Often the most
operationally experienced
board member
=

11. Confidential
WUNDERVC 11
Independent directors facilitate boardroom communication
First line of communication with the board
outside the boardroom
Overall feedback to the CEO on how a
board meeting went and what should
be changed for subsequent meetings
Purveyor of information and decisions from the board to the
management team and from the management team to the board
Independent board members serve as a counterweight to the VC board
members in a way that benefits the company, and hence also the VCs

12. Confidential
WUNDERVC 12
Great independent board members add relevant
experience in addition to being ’neutral’

13. Confidential
WUNDERVC 13
Picking and appointing an independent board member is at
least as important as hiring key startup executives
Write a job spec -> Agree spec with your investors -> Create the list of options
Get to know the potential board member
Discuss key directions for the company
Do they align with the vision and
approach?
Do they have key insights or interesting
feedback?
Explore goals and aspirations
What do they want to do with their
career or life?
How does the role on the board impact
this?
Ask for help with the company
Where will they pitch in?
What are they good, or bad, at
providing?
Ask for something relevant to their
experience
Introduction to someone in their
network, help on structuring a deal,
advice on a current strategic issue?
Check personal rapport and attitude -> Alignment of vision -> References

14. Confidential
WUNDERVC
The best startup boards are independent and founders should add external,
in dependent board members as early as Series A
An independent director helps build a strong relationship between the CEO
and the board and facilitates boardroom communication
Picking and appointing an independent board member is at least as
important as hiring key executives