Time for a performance-based approach for boards and advisors

by Kris Tuttle on August 3, 2010

The WSJ recently produced an article noting that some VC partners were on Too Many Boards and companies were finding it hard to get real attention and help from their venture-based board members.

Twenty boards sure seems like too many. Especially when the average is 4 to 5. The numbers are rising because as one VC points out “exits have been few” and with new investments the portfolio is “stacking up.” Some good advice does come from Bob Davoli at Sigma Partners who says the key is to know the individual person joining the board and what they are like rather than just looking at numbers.

More broadly though I think the point is an emerging company needs lots of help. Getting guidance and having contacts made are certainly valuable and important but why not outside members of the team that take on a more active role?

Not surprisingly board members often allocate their time based on their perception of how much their involvement will influence their investment returns. If a company is failing they certainly focus on it to see if they can preserve their capital. Similarly if a company is poised to vault into the big leagues they will focus on that too. The problem comes for the majority of companies that are somewhere in between.

I think there is a market out there for advisors and services who can help startup companies at nominal costs and for durations that match the company needs. Unfortunately today the options for companies are still fairly limited. For example many PR firms still charge thousands of dollars every month for what is a glorified press release service. (Some PR firms are fantastic but that’s the exception rather than the rule and they tend to charge more than many start-ups can rationalize.)

Another concept that I’d love to see more of a performance-based structure for board members and advisors. Why can’t more stock, options and fees be based on contributions and milestones?

Having a more competitive and performance-based approach to board members and advisors is overdue.

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