In early-stage companies, the focus is on product development, operations, and driving and managing growth, as Officers learn and adapt to their target market. Governance at this stage is about simplifying processes, and ensuring a solid baseline of financial forecasting, reporting and risk management. Good governance establishes credibility for future capital raises.
As companies grow, governance shifts to include more strategic and structured processes with consistent reporting, beyond financial metrics.
There is greater focus on Officer accountability, with an increased focus on protecting Intellectual Property and identifying sources of competitive advantage.
When companies are scaling, governance should be process-driven with the sole focus on strategy to create more value. Formation of specific committees are leveraged to optimize governance workloads.
How to Select a Board of Directors?
Establishing an experienced and effective board of directors for a startup company is challenging, as funds are limited and there is little compensation for board members. Boards are often made up of major shareholders, who contribute their time and expertise as they already have a vested interest in the path forward and outcome.
However, including independent directors is important as they are often industry experts who do not have a vested interest in the company (i.e. they are not officers or major shareholders), and can then provide more independent and unbiased advice, perspective, and judgment.
A board’s fiduciary responsibility is to the company, however Directors who are also Officers and Shareholders have to manage their conflicts of interest and focus on what is best for the company. This too is an area where independent directors, with no conflicts of interest, provide valuable perspective.
One way to think about building a Board is to address skills and experience gaps in the founding team.
Even within mature and established boards, a skills matrix is commonly used to identify the breadth of relevant skills on a board and to identify important gaps. For example, the founding team may have very strong technical experience, but lack expertise in commercialization. Adding a board member with commercialization experience can streamline the process and accelerate growth.
Similarly, at a later stage, it will be important to have a board member with significant accounting experience. They can lead the audit committee, which has oversight of the company’s financials.
What does Carrot Ventures Bring to the Table?
People generally look to Venture Studios for help commercializing intellectual property. But studios also serve an invaluable role as highly qualified and experienced members of a new company’s board of directors. They will help streamline and accelerate the governance development process.
The absence of mature governance structures is one of the leading reasons investors fail to support promising ventures.
One of the core contributions Carrot Ventures makes is to set companies up from day one with the governance structures investors expect to see before they invest.
All of Carrot’s portfolio companies are established with a baseline of corporate governance, which evolves over time as the company grows and matures. Carrot starts each company by providing hands-on expertise in governance structures to:
- Hire an experienced CEO to lead each company,
- Establish a Board of Directors,
- Formalize essential processes and reporting.
What Actions Should You Take?
If you are running an early-stage company and are looking to enhance governance practices, consider the following:
- Seek an experienced CEO, and ask them about early-stage governance challenges – what do they wish they had done?
- Call a potential investor and ask for their perspective on governance and what they look for.
- Ask yourself if your governance activities are adding value or holding you back.
Carrot Ventures provides a full suite of foundational support to portfolio companies. This includes engaged governance and hands-on experience to build the right processes and financial controls.
If you have developed an agricultural technology that has significant market potential and would like to learn more about Carrot Ventures, download our e-book or contact us to discuss your innovation.