Board composition

Hey there, startup family!

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As we enter autumn, a season that’s often challenging, and this year especially, we hope you’re all staying safe and sound. One thing that isn’t changing is our commitment to explaining complex legal constructs in simple terms. Today, we’re talking about another key piece in the fundraising puzzle: board composition clauses. So, without any further ado, let’s get into it!

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What’s a board composition clause?

Board composition is about who’s around the table when big decisions are made. A company’s board typically includes founders, investors, and sometimes independent industry experts. The board composition clause in your term sheet then explains how many people are on the board, who specifically becomes a board member, and what’s the board membership term. In the US, boards often play a direct role in decision-making and management. In Czechia, they typically act as supervisors.

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Why does this matter?

Board composition matters mostly because it directly impacts how decisions are made and how the company grows. A well-chosen board brings together different skills and experience, which helps solve problems and find new business opportunities. With the right mix of people, your board can offer valuable advice and guide your company in the right direction. When setting up a board, always go for an odd number so the decision-making process is smooth. For founders - remember that you’ll be meeting your board on a regular basis, so pick wisely.

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Dos and don’ts

Here’s how to get your board composition just right:

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Dos

• start with a small, odd-numbered board (3 members is enough until at least Series A)
• on the investor board member side, only include the lead investor to keep things manageable
• keep founder control at least until Series B

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Don'ts

• let the board decide on daily operations
• leave the choice of an investor representative to investors
• set up a board if investors don’t ask for it

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In a nutshell

A great board can make a huge difference for your company. By bringing together people with different skills and experience, you’ll get different perspectives, come up with more ideas and spot chances to grow. As always, it's about balance. So, be strategic about it and approach negotiations around board composition from a long-term perspective.

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Want to know more about board composition or any other investment related topic? We’re here to help! Reach out to our team or follow us on LinkedIn for more insights.

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See you next month!

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