Tim sat down in front of me via Zoom. He loudly breathed out a sigh. He was not happy. When I asked how he was doing, Tim looked me directly in the eyes and bluntly said, "I would do ANYTHING not to talk to Anthony," who was a board member of his company.
For the next 10 minutes, he talked about how Anthony routinely didn't understand his business, didn't try to learn about it, and showed no interest in how Tim was doing. However, during board meetings, he persistently provided his advice and would often call spontaneously to advise Tim on how to do things. As a matter of fact, just prior to Tim's weekly 30-minute Zoom coaching call with me, he had made one of those dreaded calls.
"His advice is crap! He knows nothing!" Tim exclaimed.
I asked him, "Does he really know nothing?"
Knowing where I was going with that question, Tim quickly retorted. "Of course he knows things! But he is so infuriating! He has this smug way of making me feel like I am nothing! Yes, he knows things. But he doesn't try to understand how my business functions before he pontificates from his high horse. Just because he is my lead investor and represents his famous company on my board doesn't mean he understands my business. He shouldn't be allowed to force his advice on me!"
I was about to respond, but Tim was not finished ranting. "He should come down from his ivory perch and try to understand me and my business. Instead, he just calls whenever he wants, asks me some questions, and then shares advice even after I reply to his questions. I wish I hadn't taken his money!"
Having experienced this kind of emotional outburst many times, I offered no immediate solution. Tim just needed to vent, be heard, and get his feelings out in the open. After a cooling-off period, I started a discussion with Tim that focused on how his “evil” VC might possibly be looking at his company. It helped cool Tim off and opened a better conversation along the lines of “success for all.”
For most venture-backed technology startups, venture capital (VC) investors play a crucial role beyond the investment dollars. The majority of VC’s occupy a board level position within the new investment. For many founding tech CEOs, this is an exciting and scary proposition. They have received the much needed funds after many months of fund-raising, much stress, managing the business operations while making sure that the team always had money in the bank for payroll. However, the relationship between founding tech CEOs and VC investors at the board level can present unique challenges. This blog explores the five main difficulties that tech CEOs encounter when working with VC investors on their board of directors. Understanding these challenges can help CEOs navigate this complex dynamic and build successful partnerships, and occasions like what Tim vented can be minimized. Ultimately, having had thousands of hours coaching tech CEOs, these topics consistently crop up in my dialogue with very emotional and frustrated founders.
Misaligned Objectives and Time Horizons
Tech CEOs often face challenges when their objectives and time horizons do not align with those of their VC investors. While CEOs are focused on long-term growth and building a sustainable business, they are also short-term, fire-fighters, who have to be deep in the forest of their business operations. These operators are routinely addressing fires, escalated issues and tackling high priority decisions to make their business continue to grow. Their world is very pragmatic and based on multiple disciplines - helping account receivables be collected, being on a sales call as the ‘closer,’ helping product management and engineering sort out differences, review a new MSA (Master Service Agreement) with the outside legal counsel, amongst many things). They know that they have new investors and a board, but they still have ‘work’ to do. It’s not that the VC does not understand the objectives, but that the internal value of the operator/founder is focused on fighting fires and managing resources, and it was a journey that was taken alone before the board and investment came. It is not a siloed environment anymore for the founder.
The new investors, and now, board members, have an equally time intensive prioritization of results in their minds. For the VC, it’s about judicial but quick deployment of capital so that the growth expectations may come to fruition. Their goal is to support the CEO of their new portfolio company with whatever he./she may need, but in the long run, their time horizon has a different twist in urgency. It’s a mixture of letting the new operational team execute on their proposed plans, while providing gentle taps on the outside of the company ship in terms of helping steer in a well-thought out direction. These nudges ultimately change in urgency when the board members don’t see correlations between strategy and results within the time frame set by the CEO. They operational CEO may feel the increasing pressure to perform the longer it takes for projections to materialize, and yet all the board members want to do is to help the business. It may feel like the VC may be just prioritizing shorter-term returns on investment or exit strategies. This perceived misalignment can lead to tensions during board meetings and decision-making processes.
To overcome this challenge, CEOs must establish open lines of communication and transparently discuss their long-term vision with their VC investors, and be willing to ask for input on the short-term decisions he/she is facing. This level of openness is actually refreshing and much needed. Consistent communication builds trust, with the return and report of progress, and over time, that enables the board members to have less invasive requirements of progress reports. Regularly updating investors on progress toward key milestones, sharing market insights, and demonstrating the consistent improvements made, along with mistakes, help to align objectives and mitigate conflicts. In the practical world of communicating enough, but not too much, the most effective CEOs communicate exactly that to their board members. Something like, “Dear board members, I would love your help on certain short term objectives, and will ping you for your help. I also don’t want to feel like you are needed to run my business, and so I will be selective in my request of your help. I feel your support and will judiciously ask for help when needed. I want to set expectations upfront. Thanks for supporting our vision and allowing us to grow the business.”
One CEO client of mine made it a practice to set up quarterly calls (before the board meetings) just to spend one-on-one time with each board member with personal updates and relationship building time. The proactive approach made the board member feel valued and heard. The CEO was able to manage the relationship, set expectations, and even influence the general outcome of the board meeting by having ‘set the table’ before with insights, recommended ways the board member could help individually and within the setting of the board meeting. The company derived considerable value. The board meeting was usually very productive. The board members, individually, felt like they were contributing. The CEO was able to manage his business without feeling interrupted or second-guessed by his investors.
Board Composition and Dynamics
The composition and dynamics of a board of directors can significantly impact the relationship between CEOs and VC investors. Boards often consist of multiple investors, each with different priorities, expertise, and personalities. Differing opinions and conflicts always exist. Depending on the round of investments that have taken place, the newest board additions may have more power in the influence table, based on their dollar amount of investment and when they came into investing into the business. Existing board members understand that. It’s not just the unwritten order of things, but a known hierarchy of how much money and when it was brought into the business that impacts this power structure. Usually, the later investors bring in more monies and have more preferences. These companies, and the individuals representing them on the board, take a senior role and priority level of influence on the board.
The reason for that simple explanation of board power and order of influence becomes crucial as the individuals coming onto the board with each successive round has more influence. Whereas when you started with some friends and family money that you could manage with updates casually, once you get VC money, the commitment to communicate progress, setbacks and strategy discussions are more formal and have more personal impact as the board has the capability to not just manage CEO compensation, but can also terminate the CEO. Hence, from the start, the caliber and cultural fit of each board member is crucial. This increases in intensity as more money is raised and additional investors take a seat on the board. From a casual, family environment, you now have professional board members and investors who expect you to perform at the rate of growth, on time and with clear transparency. Can you see why the board composition is key to the ‘happiness index’ of the CEO who is focused on growing the business aggressively. More people to satisfy! More people to understand and cater to! It’s a lot more pressure.
One of my experiences that I share willingly with my clients is to always have a neutral board member in the mix. In other words, not just professional investors who bring pattern recognition and experiences from helping many portfolio companies, but a real-live CEO who has successfully executed what you are trying to do, and who has succeeded. Think of them as your independent board member who doesn’t invest in companies as their main source of time allocation. They bring creditability to the board, they bring practical advice, and they usually have super strong connections with the talent pool in the very industry that you are trying to grow the business in. One CEO told me, after a successful placement of a third party board member that I had recommended, that the new board member was able to successfully bring up ‘reality’ every time other board members would talk about some strategies and growth ideas, and the third party board member shared very different views that ultimately won the entire board over for certain decisions. It certainly made it easier for the CEO to be able and have practical discussions on many operational and strategic topics. CEOs should proactively manage board composition by carefully selecting independent directors who bring diverse perspectives and relevant industry experience. Building a strong and well-balanced board can help foster a constructive and collaborative environment where conflicts are addressed professionally, and decisions are made in the best interest of the company.
Pressure for Short-Term Results and Growth
With my many years of running tech businesses and coaching tech CEOs, the new board of professional investors inevitably bring the need to perform faster and more effectively. It’s the reality of agreeing to take in investment dollars in return for the opportunity to make the potential grow and become successful. It also means the clock start ticking right away, and that the advice of the board will be towards faster sales, faster hiring, faster deployment of capital, and ultimately, a quicker time to an exit. Without doubt, the goal of every investor is to produce a positive yield in less time, because the math of yield as a percentage has time as a big factor. So do tech CEOs experience pressure from VC investors for rapid short-term results and growth, which may conflict with their long-term strategic vision? It may feel like it. It may even feel like the discussions around the board room is focused on different agenda items relative to the investor’s personality and company they represent. The CEO may sense that the investors are not in ‘reality mode’ and only creating more pressure and stress on the operational leadership team.
As a coach for first time CEO’s who have been venture funded, and having worked with many VCs, let me assure you that though you may feel the pressure and believe it to be real, most VC’s are actually only trying to help you succeed. Period. Their intent is to have their investment in you become a statement of support, help and an accelerant to the vision you created when you first pitch them for money. Many of my VC friends have said this to me repeatedly, “If only the CEO knew how much I worry about them, their work/life balance and personal health beyond the metrics of operational excellence. If they could see what we are doing to help them succeed.” From research analyses, competitor profiles, to introducing strategic partners, future executives to hire, to advice on how to communicate good and bad news to any employee, investors are keen to help you succeed. If you succeed, then the business will succeed and their monies will have been put to good use. I have personally witnessed on VC board member tell me personally, “If you have a pressing problem that is keep you up at night, text me and I will get on the phone, even if it is at 2 am at night, so that I can help you brainstorm and tackle this issue. Don’t hesitate. I’m here for you.” I’ve never forgotten that individual. Just this year (2023), I’ve had multiple other VC’s express their profound desire to help, and at times, be disappointed that the CEO wasn’t taking them up on the offer. Whether it was hubris, lack of confidence, or inability to perceive the VC’s help as being legit, the investors were sincerely sad. In many cases, this is one of the key reasons why I am introduced into CEO coaching relationships.
Now CEOs must strike a balance between delivering results and managing their worries about not being able to execute on their long-term vision. They may perceive the board’s advice as too narrow and transactional. Based on what I have seen, the CEO should consider that abundance-mentality of the board, and be open to levels of self-awareness so that the board is not labelled inaccurately as the ‘bad guys.’ This takes some courage because part of the reason why the business succeeded was because of the doggedness of the founding CEO, their ability to personally shoulder the workload, have control of the business, and drive results without the help of a peer or a senior management team. This drive and effort level is never to be minimized. At the same time, this independent approach is not scalable, and the entire principle for investment dollars is to explode the business, hire resources to help grow with expertise in the various levels required to meet the vision. That’s not going to happen with s single point of failure and success - the CEO. He or she cannot equate the board’s advice to be a sign of weakness. The perceived loss of control, the questioning of the founder’s identity, and other fears are exactly that - just fears and stories that the CEO may be creating unconsciously. It’s important that there be sufficient self-awareness to catch yourself not be caught in the loophole of negativity and blame. In the worse case, if the advice from the board resulted in an earlier exit, why would that be bad?
At the same time, I have also experienced and watched many CEO’s who have had bad advice, poorly worded recommendations, ignorant recommendations be made by investors on how to run the business. Regardless of intent, as a CEO coach, I have had to advise my clients that they should also own the operations of the business, be transparently communicating their growth strategy (managing investor expectations), and absolutely share/tell/communicate that input is great when needed, but that the CEO is in charge of the business they founded. It is not just to create boundaries, but to also communicate how and when help would be needed and asked for. It is important that board members understand how they can best help, and the CEO needs to set the table in terms of how that help is provided. But indiscriminately blaming or labeling the board as being short term focused is usually inaccurate, unwise and a poor position for the CEO to assume. Instead, set expectations on how the board can help you succeed and HOW they should offer help. You are the CEO. You should proactively communicate, execute, and report back on the progress and failures so that your business maturity will also be unquestioned.
Now CEOs must strike a balance between delivering results and managing their worries about not being able to execute on their long-term vision. They may perceive the board’s advice as too narrow and transactional. Based on what I have seen, the CEO should consider that abundance-mentality of the board, and be open to levels of self-awareness so that the board is not labelled inaccurately as the ‘bad guys.’ This takes some courage DRAFTJS_BLOCK_KEY:97hd7because part of the reason why the business succeeded was because of the doggedness of the founding CEO, their ability to personally shoulder the workload, have control of the business, and drive results without the help of a peer or a senior management team. This drive and effort level is never to be minimized. At the same time, this independent approach is not scalable, and the entire principle for investment dollars is to explode the business, hire resources to help grow with expertise in the various levels required to meet the vision. That’s not going to happen with s single point of failure and success - the CEO. He or she cannot equate the board’s advice to be a sign of weakness. The perceived loss of control, the questioning of the founder’s identity, and other fears are exactly that - just fears and stories that the CEO may be creating unconsciously. It’s important that there be sufficient self-aware
While VC investors bring substantial benefits to tech startups, the boardroom dynamics between founding tech CEOs and investors can be complex. With the many years of coaching and thousands of hours in private discussions, I absolutely advise people that the relationships between CEO and board members do not have to be difficult. By recognizing and addressing the 3 main difficulties outlined in this blog, CEOs can navigate the challenges more effectively and build thriving businesses with a supportive board of directors. Ultimately, trust is created when the CEO is the initiator of clear communication, consistent in action and words, and over time, displays competency in the business he or she is building. By incorporating a proactive and consistent connection with each board member, with transparent talk about what is working and what needs improvement, the CEO can judiciously ask for help as needed. This also builds confidence and trust in the CEO as the board monitors how maturely he/she is handling the commitments. Having an independent board member adds a level of balance in the help, advice and brainstorming of growth challenges. The level of practical advice can also be refreshing as they will come from a perspective of being an operator who has faced similar challenges and can bring seasoned advice. Ultimately, the board can become a welcome and incredibly helpful resource. It is up to the CEO to have the right self awareness, attitude and proactive approach to making this body of people work for the good of the company.