Disclaimer: Susana Garcia-Robles, Venture Partner, Capria Ventures, wrote and contributed this article to TechCabal.
More than a decade ago, a small SaaS company running from a tiny house-turned-office in the suburbs of the Southern Indian city of Chennai had the ambition to go global.
Two VCs from Accel Partners traveled to the city to meet the founder and
understand his vision. Within the first few hours of conversation, they knew they would invest in the no-name company creating software to improve customer experience.
That company was Freshworks. Accel Partners’ Shekhar Kirani and Sameer Gandhi wrote Freshworks founder Girish Mathrubootham his first check of US$1 million in 2011.
Accel eventually participated in or led every subsequent round. And Shekhar became a board member of the company who advised and supported Girish as he grew and transformed Freshworks into a global giant.
In 2021, Freshworks had a mega listing on Nasdaq at a US$13 billion valuation. Accel’s bet on Freshworks turned out to be worth US$3 billion. A win-win for all.
The takeaway from the story?
For fast-growing, early-stage startups, money matters. But whom you raise money from is equally as important. Because your investor, who may become your board member, can either be an asset or a burden.
The comrade in arms
For entrepreneurs, building a company is a journey that is sometimes lonely and often stressful. Full of highs and lows, it is precarious as well.
Twenty percent of startups fail in the first year, while half of them succumb by the end of the fifth year. Overall, about 90% of all startups fail.
Startup failure could be attributed to a lack of funding, missing product market fit, founding team conflict, or problems across operations, technology, and marketing. In some cases, startups fail because their founders lack experience and expertise and struggle with oversight.
As a founder, having the right people to support and guide you and play devil’s advocate when needed is critical if you want to survive and thrive.
It would be best if you had a board of directors.
Functions and objectives of a board of directions
A board is a governing body that startups formally set up when they raise their first external funding. This governing body is liable to protect the interests of the shareholders.
A company’s board—which typically includes founders, investors, and independent board members—oversees and shapes the company’s strategic direction and makes critical decisions like fundraising, partnerships, acquisitions, hiring, and listing.
Gregg Adkin, Managing Director at Dell Tech Capital and 20-year VC veteran, encapsulated the value of the board into five main objectives:
- Charting out the company’s winning strategy
- Building the right team and the right culture
- Creating and maintaining the company’s image
- Ensuring finances are in order and making fundraising decisions
- Setting up a system for compliance.
The bottom line is that the board of directors is supposed to help a startup grow sustainably. However, the founders’ dynamics with the board will ultimately decide the startup’s future.
What happens when you have a good board but fail to utilize it?
You waste three valuable resources—experience, expertise, and money. The biggest reason that founders fail to tap their board is their typical dynamics with the board: They report the company’s progress, financials, and results and get consent for future actions.
Even if your board members align with your company’s vision, this one-way relationship can render your board useless. Your board meetings will turn into a cumbersome, stressful chore.
To get the most out of these meetings, inform the board of all financial details and developments in the most efficient way possible, even if it means apprising them before the meeting. This method will reserve ample time to discuss the critical issues and challenges with your board and use their know-how for decision-making.
Founders who focus on building the right board and leveraging the knowledge and network of the board members will withstand ups and downs. And that is what it takes to survive in the startup world.