Hey, and welcome. I assume you've had a great day of programming. so far. It's been fantastic for eisah. And it's about to get more fantastic because we're joined by Dave Easton from Generation Investment Management. Dave joins us from London. And Dave, can you just give us a bit of background on on the firm and what you guys are up to?
Sure. So um, thanks, Darrell. So your generation is a sustainability focused investment firm. We've been going almost 20 years now. And we were always want to be a firm focused on sustainable investing, which for us means really integrating thinking about the environment, about social issues and about how you treat employees. Because we basically believe that that builds better companies, right. So we believe that the most the best and most enduring companies will be those who are on the right side of history. And so by kind of integrating sustainability into the way that we invest, we will make better returns in the long run. And that proving that really is, is our mission. We've got a public equity fund, where we've been doing that for almost 20 years. And we have a growth equity business, we're on fund three kind of investing, series C and onwards really, in, you know, companies that we think are transforming their sectors for the better across planetary health, human health and financial and social inclusion.
Great. Thanks, Dave. That sounds like a fantastic thesis. And the name makes more sense now. But, yeah, it's it's great to have you here, and especially talking about this topic, a, we're talking about boards and board governance, which is, I think, a topic that is probably new to a lot of first time founders and something that, you know, they have no reason to really be that familiar with. So it's, it's a bit of a mystery, but you're going to help us untangle that.
Sure, absolutely. I mean, just to say, I've probably been on the board of 1518 companies now from, you know, literally the founding through to public companies. So a couple sort of spread of that experience. And like, you know, the kind of dirty secret I've got to say is that many, many CEOs and founders don't enjoy that boards, they kind of find them annoying, kind of finding a bit of a distraction from the top priority, which is building. But there's also a whole bunch of CEOs and founders that I work with who kind of find that boards, like invaluable, energizing, you know, important. And so I think there's a kind of happy path when it comes to boards and governance, and there's a sad path. And hopefully, we'll talk a little bit about as you know, some of what makes the difference between those two paths. But before we get into our boards them themselves, I say, like, what, what is the point of governance in the first place? Like, why even have it. And there's basically two things right, that matter. One is making sure that the decisions that are made are made not just in the interest of management, but in the interest of originally shareholders. And we think for sustainable companies, not just shareholders, but employees, wider society, you know, and the environment and future generations. So like, that, to us is kind of core about what governance is, it's about making sure that, you know, the decisions being made don't just, you know, aren't just the right ones for the management team. They're the right ones for everybody, including shareholders, including the planet and its people. And the second thing is also just to make sure that there's a, you know, a structure to help management focus on the on, on the when they are thinking about those things, that they have a sounding board to help make the right decisions. It's not in most instances to make decisions for management, but it's a way of kind of helping you bring the most important decisions to the surface and make sure that they're really being properly reflected. I mean, that's basically the kind of two core pillars of governance and like, boards of directors of the technology that we saw so far invented to like, deal with those two things. And, you know, that's, that's kind of really core of what governance is, like, and I think, just to say, kind of the most important thing about that, then when you're thinking about a board is that the members of the board are not there to look after themselves, right? Like a board meeting is not is not an investor management conference, or at least it shouldn't be, it should be about asking these questions and like, what decisions are in the long term interests of the company, and all of the people, employees, customers, shareholders and the like, that rely on it. But getting that culture right is like super important, and is often why things go wrong, like people are not, you know, perfect, and everyone has their own interests, but as much as possible. Getting governance right is about getting people when they're around boards feel like a team and feel like they're not looking after themselves. But they're looking after the bigger picture. I said it's not easy. But it really matters, particularly in the moments when things go wrong. So I think the couple likes are ways in which to make that common real, I think one that is like, super simple, but I love is, when every board meeting starts, you know, with the obligatory board deck, with the first slide, saying, This is the mission of the company, and reminding everybody why they are there. And the other thing that I think often goes along quite nicely with that is a story because people, even investors, you know, thinking stories, as much as in, you know, facts and numbers, you know, from customers, or employees or whoever, that really grounds everybody in like the mission and like what it actually means in practice. And I think that kind of reminder is incredibly important for building this culture of, we're not here to serve ourselves, we're here for this broader mission. In the case of the companies, we back, you know, missions that we think are going to make the world a substantially better place. And what everyone should be doing is thinking about how to achieve that, not about how to achieve their sort of own short term self interest. But to kind of make all that work as well as getting the culture, right, like, it's really important to have the right people in the room. And, you know, I'd say, probably for people starting out, this isn't so much of a problem. But the biggest pitfall we see what I've seen, when it comes to
boards of venture backed companies is just having far too many people in the room. Right. So, you know, in the early days, I think of a company, you know, three to four people is a great size for a board, you know, people small groups make fast decisions, they make them, well, they make them quicker. And the earlier you are, the faster the turnaround decision you need to make, right. But even in bigger companies, you know, I'm, I've been through situations where we've got companies with over 100 million in revenues. And we'd have to go and cut the board back from 10 or 11, people down to six, because 10 or 11, people just don't make the decisions. And the thing is, this creeps up on you, right. So when people are negotiating term sheets, very often, board seats, observer seats, these are not things that kind of found a spend as much time on stuff like valuation, it's kind of an easy gift sometimes. But it's got a kind of compounding effect. So if we're the A, you give a board seat plus an observer, right, and then at the B, you know, you've got co leads, they both want a board seat, and you've got another observer, like this thing compounds, and suddenly, you know, I've been in situations where you've got 2025 people in the room, and like 2025 people is just not a not a group that makes decisions, right. It's just a sort of, like a weird symposium or something. It's not like a proper group of people trying to make good decisions, and you know, where you can keep that kind of culture alive. And so I really think there's, like, you know, sorting out, the best thing to do is to sort out in the first place and not have the deep restrict on the number of think of them as precious if we're giving out board systems overseas. But the other thing, the other options you may have later on are to get a later stage investor like us to come in and kind of, like help clean it up with some role we often play is to, you know, turn around and say, this board has gotten out of control and condition of us investing is to sort this out. And that is often a role pretty appreciated by founders. The other is to like Stickley, and create an operating committee where you basically have a board within a board, we've got four or five people meeting regularly. And the wider board meeting less frequently. I mean, that's obviously less good than a kind of fixing it in the first place. But it's, you know, sometimes a fudge that can, can work and make sense. By the way, this like having too many people in the room is obviously goes for the you know, the board members and observers and stuff. But it also goes for management teams, you know, it's super powerful, where members of the management team can turn up and present the boards and get to know the people but equally, if you have like 567 members of the management team sitting for everything, which often happens that ends up being, you know, too many people and too little, like, not a good enough ROI on the time of those management team members. So I think keeping it as small as you can, as long as you can is like super important. In terms of fields, people end up being I mean, very quickly, the sorts of things that we find that often go wrong when you're bored stacked full of investors, right. So like, I think investors are great, like an investor. I think there's like super useful things investors do. But five investors is like not very useful, right. So five investors like it's just more people who will like generally think the same. So a typical thing that we're doing when we come in We're saying we're not taking a board seat, we're gonna give our board seats to an investor. So it's to an operator, someone who actually knows what they're doing. And I think, as companies go through, you're in the earliest stages is probably fine to avoid operators, and just have, you know, one or two investors, particularly operators who come from, like bigger company backgrounds, they're not necessarily so helpful when you're getting product market fit. But as you get bigger and bigger, you know, operators start to Trump investors, and we think boards need to move more heavily in that direction. I think the other thing to say is that, you know, also diversity is like, unbelievably important when it comes to board design. And your thankfully, it's not something that we have to kind of lecture people about these days, like most people know, and understand it. I mean, the, the kind of the evidence base is, like, now overwhelming, that diverse boards make better decisions, whether that's gender diverse, or racial, diverse boards. And so, you know, it's kind of like, just within quarter designing, you know, a great board for any modern company. And the final thing is also just like, you know, making sure you have the right people at the right time. So, you know, again, in the early stages, people who've been there been, you know, scrappy, understand how to get to product market fit, get your first sales people, those are super important. But some of those folk, you know, when you get later on, they kind of tap out when the questions are more like, how do you scale internationally? You know, how do you think about, like, maintaining culture at scale? And so, you think not keeping a static view on who are the right people on the board are is also pretty critical.
So that's like, who's on the board? I think, then the question is, like, what happens? Actually, at the board meeting? It's self, and there's like, you know, I'd say that the most, the thing I most commonly see go wrong here, is where people are having the wrong discussion, right. And that really starts from, like, management teams, not making it clear when they already know the answer. So the number of times I've been in board meetings were actually management present the kind of whole section, and they asked for the board's feedback. But actually, the last thing they want is the board's feedback, because they've already know what the answer is. And, like, that's pretty frustrating for the management team, because they don't know the answer. And so they hear people who know a lot less than them debate it for a while. And they're like, well, this is kind of pointless. And then it can dawns on the management don't on the board members that actually, management already know what they're gonna do here. So like, what, what was the point of that? And so I really think, you know, for me being super clear with the board, what, like when you know the answer, and you want to ask for their advice. And so you just ask for their permission, because you think this is an important decision, it should get ratified. But like, I don't wanna talk about it, because I know what I'm doing, unless you really disagree. Like, we're just gonna do it, versus when you don't know the answer. And I think for me, that's when the board meetings become much more interesting, right? There the board discussions where it's like, oh, actually, the management team have some hypotheses, but they don't know. And they kind of do one, debate advice, not, not ultimately, mostly to decide because the management team will probably decide but when they really do want that debate and input, and so I think making sure the board meetings are focused on, you know, that those discussion topics where there's genuine uncertainty, difficult questions to be answered versus, you know, lots of playback have just stuffed at the mouth, or just kind of going to do anyway. And so what's the point, but also, then I think bleeds into the materials that get sent out. So again, for me, the simpler the materials, the better. So I love starting with just a single page CEO report, that just grounds everyone doesn't have death by PowerPoint. It's just simply, you know, what went well, what went badly? What are you excited about? What are you worried about? And then like, quickly, the board can kind of find themselves inside the CEOs head and be like, Oh, I see. Like, you know, that I was worried about these three or four things. That's where I should be focusing my effort, not on the other stuff, because that's not the stuff that they seem to thinks most important. And also, again, means like having board meetings and materials that aren't like, endless reporting back. Clearly, KPIs are important KPI sheets are important. performance against budget is important. But for me, it's like, if you if the board has time is spent listening to that, that is not a useful way to spend time. And so like practical tip again, I find incredibly useful is to like throw these through the board board deck up in Google Slides or any other shareable format, and have the board members ask the questions and comments in advance, so they can be answered in advance. So no one spot in the board meeting asking factual questions or other stuff, like all that stuff is taken care of in the morning is really focused on, you know, what is the question we're trying to answer here today, where the management needs to help to think through options you try and get a different perspective. And the only other thing I'd say about you know, when we're thinking about board, about boards and board materials, the meeting itself is real. about like, you know, when we think of board materials and KPIs, we think of integrating sustainability KPIs in those rights. We think it's incredibly important that if you are a mission driven company, that your your KPIs reflect that mission. And so there's not some separate thing about sustainability is at the core of how you report back to your board. And the other thing that we believe fundamentally about sustainable companies is that they're ones that focus on the long term. And so again, like, as well as having quarterly, okrs, and everything, which are incredibly important, having like, what are the three to five year goals of the company? What are the goals of the company that really matter and sort of racing ourselves against that on a regular basis? Again, keeping that balance between short term decisions we need to make always anchoring back to what we're trying to achieve here in the long term. And are we therefore making the right decisions now as a board, that are anchored off these three or five things that will matter to whether this is a great company in the long term, because too easy, it's just too easy to get sucked into minutiae was kept up or down this month, which you know, matters, but it's not what really builds great companies. And the final kind of couple of things to say is like, what happens when it goes wrong? Right, so this is all like stuff that we think will help help you take you on the happy path. But like, you know, what, if it isn't, what is not working, when the first thing to say is like, running regular board surveys, which you can find plenty of examples on the internet, and can be incredibly easy and quick. And having the board reflect on their own performance is really important. The other thing to say is that, like,
mutual feedback is also really important. So having time which, again, is helpful with as few board members, the CEO and the board member to sit down and give proper mutual feedback, meaning the board member saying whether or the CEO is doing well and badly, but also the CEO saying the same for the Board Number, and that is like unbelievably rare and unbelievably powerful, when it happens, you know, has to be done right has to be done the same way that you would feedback to a co founder or a senior executive respectfully, you know, evidence base and all that stuff. But you'd be shocked at how many board members don't get feedback, and unhelpful members of boards for years before anyone, you know, ever actually says, This is what you're doing. And it's unhelpful. Again, that's, the CEO should do that. That's the role of a CEO. But from time to time, where you have, like highly problematic individual. That is, I think, when you can lean on other board members, particularly experienced board members to kind of have a quiet word. But the thing I would say is, if you're finding yourself going down the sad path, you know, don't shrug and be like, Oh, well, that's annoying, I'll just sort of ignore my board. I think this is the time to lean in, and actually try and fix the problems and nearly always actually fixable, more easily more quickly than you would expect. Anyway, final note, I'd say before, kind of, you know, opening up to q&a is I've given you relatively generic advice, but one of the most important things to say is that the right answer changes dramatically during the life of a board meeting, right? So the kind of governance of board that is right for 20 person, seed companies these days company is probably three page, more decks three to four board members meeting a very regular basis. And, you know, like relatively informal, fast decision making, when you're 1000 person company, preparing to go public, you know, meaning six to seven people, eight people, maybe committee starts to become relevant to delegate some of the work and the term becomes more formal, right. And so I think the thing just to say is that like evolving a management team over time, evolving the board, both its governance, both the membership, and its practices is essential. And so everything I've told you is sort of generic at all stages. But clearly, you know, this is never a one and done. It's not like it's fixed. It's a constantly evolving thing, in the same way that you're any other part of a fast growing technology company. It needs to evolve as it grows. Right. And to stop that, because that's, that's probably quite enough. But hopefully, that gives you a sense of kind of some of the stuff that, you know, we've seen on what takes kind of boards into that happy and unhappy places.
Yeah, yeah, I think. I mean, it was eye opening for me for sure. And I do want to remind the audience as well that you can ask the q&a directly, use the slider tool. So if you're in the the hoppin event venue, there's a tab called slider, and you can or q&a, and you can go over there and submit your questions, and then we'll get them then we do have some questions lined up. So I'll jump right into it, but Rahul bacani apologies if I'm not pronouncing that correctly. asks, Do vanity boards have a which also came up to me while you were talking? Because I was thinking about, you know, stunt casting for boards, right. What what are your opinions on that?
Um, thanks for all. Look, I mean, to be honest, I'm not a fan of vanity boards. I think. In general, I you know, I would see them as More often than not red flags, right? So people are going to board members in name only. Just it's, it's, it's two things. One is you don't actually get the purpose of a board, which is to have, you know, real debate real discussion and people who are genuinely want the long term, the long term interests of the company and its broader stakeholders. So for me, it's a it's a bit of a red flag. And there's generally other ways you can get that right. So can you get that by, you know, senior advisors, other things, again, this is like hiring a board member for their Rolodex is, is not necessarily useful, because that has a very specific purpose, which is generally outside of the role of the board, right. So I think find other ways to engage those people. Which actually brings me on to the third sort of thing I should have said, which is, I think one of the most important attributes of a board member is one who is prepared to like, learn, and think and apply new new thinking to a situation, often volunteer board members, I think, you might find, will turn up, they'll say something pretty profound at the first board meeting based on some important experience they've had. But that's also what they say at the second board meeting. And the third board meeting in the fourth board meeting, quite quickly becomes actually unhelpful energy in the room. So for me, I think, you know, having board members that are like, flexible, and to learn about this company, and apply that thinking to it is better than people who are gonna like phone it in, even if their name sort of recognition is high.
Good advice? Yeah, I think. I mean, often they're done for press purposes, right? Like you're doing it to garner the attention of the press and public. And it's, I will say, also, from our perspective, it's, it's not really effective in and of itself, right. Like it requires the company to be solid, all the all the fundamentals have to be there for that to even be something to begin with. So you might as well just focus on the fundamentals and leave that part out. Right? Or
I think people could quite do that, as Donald, I think people do quite quickly tell Oh, is this someone who's like really spending their time on this thing? It's like, Oh, that's a real, yeah, like indication of something important, who's like they want to roll their sleeves up and help this company? Who is it someone who's like, attach their name, which kind of quite quickly becomes, like, fake and actually undoes the kind of good you're looking to get I think,
exactly, exactly. Yes. It's very apparent to us and to everyone. Another question, actually, from row before we move on, is it required to give up a pre seed or seed investors of board seed? Like, would you consider it a requirement at that stage?
No, I don't think so. Like it's not I mean, it's not a requirement at any stage. I would say the, you know, like, one of the benefits depends on who else you have on your board at that stage. Right. So if you've got a, you know, somebody else who's new, maybe not from management, but is well known who's performer founder, who's prepared to play that role? And you're part of the board? I think people might say, well, that's okay. That, that makes sense. But I think it is helpful to have somebody you know, along for the journey, again, also depends on experience, the management team, have the management team done this before. If they're not, I think someone who's been along the journey there is helpful. It could be a seed investor could be someone else. Off often it is gonna be a seed investor, which is again, why like, choosing your investors is unbelievably important, because it is a very significant degree of choosing who your long term board is going to be.
Yeah. I have a kind of related question from just an anonymous ask, actually, but it's what what is the actual process of like, gracefully declining? The the request for a board, see, how do you go about doing that in a way that doesn't kind of offend the asking party? And I would add on a follow on question for myself, like, is it? Is it something that puts at risk, like the potential for people to invest?
It depends on why. Right. So there's two, there's two possible reasons. One is because you, like have a kick ass board. And if you can turn around, I don't know, I've got a great board, like, look at my board. This is the right board. I've thought about it very carefully and curated this board. That's like, Don't you see this is the right thing. And then you can have a debate about that. I think like a reasonable investor might at that point. It depends on the individual, obviously. So that seems fair enough. If the answer is because I don't want you on my board, then, you know, to be honest, you shouldn't be taking their money. So to me, it's about you know, it depends on why you're declining. If you're declining for the right reason, which is that you've like, proactively had a plan. That's good. If you decline for the wrong reason. Either. You just don't like that individual. Or you just don't think boards are important or governance is important. Those are probably the wrong answers. I think as with many things, context matters.
Here's a question from Noah Cornish. So our board our domain experts and bring capital, but they don't seem interested in the day to day. What do you suggest to address that divide?
super helpful question. Yeah. Um, so again, I think it will do it depends exactly on what it is that you think you need. So the day to day, but boards shouldn't run companies, right? So it depends what you mean by the day to day, if what you mean by the day to day is like, what weekly trading was or, you know, like, making this higher, then, honestly, that that's not unreasonable. And sometimes it's helpful, right? Like, I find it probably kind of CEOs who say, I wish my board was a little bit less interested in the day to day. I mean, the role of the board should be to think about the, the long term and the bigger picture and not to go try and trip over management. However, if actually, what you mean by that is, you know, there are specific things that you really would like it would help with hiring for instance, or it means the thing I said before, where board members are kind of saying, Look, I'm saying the same thing, every meeting because they haven't read the materials, they haven't, like, thought about it. They're sort of like being like, Oh, I remember 15 years ago, I had this company, and I did this thing. And they just say that again and again, then neither of those have to help healthful behaviors, right? I think that I say it's, it's about feedback. It's about sitting down and saying, What's we've been doing this for a year, six months, 18 months, whatever. Like, what how do you think I'm doing as a CEO? Cool, and like, this is how I think you're doing this board member, I love it. When you make this industry connection, I wish you helped me more hiring. I love it when you know, you think about the long term bigger picture, but like I really need help on. You know, I don't think you read the materials well enough. And so just giving that honest feedback, I think you'd be one of three things at that point is likely to happen. One, most likely. They're like, sorted out. Number two, they said, you know, this isn't for me anymore. In which case, that's also a good answer. Number three, probably the least likely is that they kind of continue to behave badly, at which point maybe you need to escalate it, but most likely just the honest conversation fixes it. But it's also about being realistic about those expectations, and what is it you really want from them, and be careful what you wish for when it comes to their involvement in the day to day?
I think I mean, one of the things that that has become apparent to me as we have this conversation is, a lot of the best practices are best practices for how you should run a business or a management team. Anyway, right, like day to day or x board considerations or anything, the meeting too, especially right, it's like, these are things you should do in a meeting. And these are the things you should not do, you should not waste anyone's time with things that you can do offline or, you know, advance homework or that kind of stuff. So it seems like if you take a lot of those best practices and kind of extend them, they make a lot of sense in the board context as well.
That's 100%. Right. And I think that there's a saying sort of board members have a specific role, but are part of a company. And so I think where it tends to break down is what it's sort of, like, let's be honest, your board members are also often your investors, or some of them are right. And so there's a certain amount of continual pitching, but if like, if you take the fundraising process, and all meetings become a continual fundraising process, like there'll be a waste of time, you'll be sad, and you'll not get the best value. So I think that's where it could go wrong is where it's like, oh, my investors are different from my co founder or whatever.
Yeah, there's a power differential that is at play, that is not a play.
Like, again, like most of them, any good investor is gonna want to be treated like a, you know, friend, peer colleague, in that way. And so just Yeah, like you say, I think, as much as possible, eating into the culture and the way of running a business that you're doing day to day and extending it into the boardroom.
And then here's another follow up from Noah. So he actually meant he actually meant this is a horse problem, I think, actually, the day to day board activities. So they don't attend board meetings. They don't. They don't do their regular board responsibilities, but again, help with the bringing in capital, and the domain expertise.
Yeah, well, in which case, then, you know, that's obviously a like a real problem. Because, again, it's not a, you know, boards are real things, real responsibilities, and, you know, it matters. And so I think the right thing to do is to have a conversation with them. Say, again, this is what I like from you, but it seems like you don't really want to be a board member. Now, there are other things that I'd love you to do. Like maybe I would love you to be my, like, senior adviser on the industry, or I'd like you to do a day a week during this and just like start to specify their roles and then figure out how to, you know, how to fill in the ball rolls with people that actually want to want to do it and do it properly and what's required. But yeah, like, you know, it's obviously Okay, we're all busy. People occasionally miss a board meeting but searly missing board meetings and not not really more materials, you're just not a board member anymore. And so I think they're telling you by their actions, they don't want to be board members potentially. So just have the conversation, give them out, but like, figure out how to maintain the relationship that you both actually would find what, like, you know, sort of put up productive for both sides.
I think this actually brings up another question that I have, which is, you know, what are your thoughts on on the time required to set up kind of like, the parallel organizations or entities around the company, like advisors, ambassadors that are attached to it? Right, like, are they worth the effort? But it sounds like you're saying they definitely are, and they can be a way to solve this other problem? Yeah.
I think they can be one that like, you know, I think I said too many early stage companies, like throw around advisor stuff, you know, advisor roles and things like that, because I think it looks good on PowerPoint. I think that is like, not good. And I see too much of it. I think it's really good when it's like very specific, right? It's like, Hey, your job is to like, I can't afford yet a senior siara. Right. But like, what I do need is introductions to these levels of people. And so your advisor job for me is to on to two days a month or whatever, to make five senior introductions to people in the industry that matter and pay for that, like anyone, but I'm gonna be very specific about it. Like what what the sort of general like, you know, I'm going to pay you to kind of give you options to hang around, like looking important, again, doesn't really for me work. So I think advisors work where it's a very specific mandate to do a thing. And you know, intentionally what it is, rather than I kind of like this person and their CV looks cool.
Right? Yeah, if they're actually doing work for you, instead of, and again, this is another thing where the advice about the often celebrity board members or whatever doesn't work, like it applies here, too, because we see this a lot on the press sighs where we're so and so as an advisor. And it doesn't matter to us almost at all right? Unless it's like, oh, you're a biotech company. And one of your advisors is an extremely accomplished, the longtime scientist and medical professional, like, yes, that matters. Right, but otherwise, not not very significant. Here's one from Ryan Williams. So should we hire an attorney to help reach VC firms or investment contacts?
Uh, I mean, again, never say never. But my natural inclination is no. So I think that, firstly, attorneys tend to not be the best, you know, sort of intermediaries when it comes to capital raising, there tend to be better people around, but also like, I'd say until we reasonably late stage. Investors much prefer to hear directly from founders, right. And so I know, it's not always easy, you know, cold emailing and and stuff. But the best firms are pretty good about that kind of thing. And then the days of warm introductions are like, quite happily starting to somewhat wane. And we just did some work on this recently, and, you know, 80% of deals, or even at the 100 and $50 million plus range were done without any kind of advisor or intermediary, direct pay to investor. And so it actually I would say, particularly the early stage, when we see when I see like an advisor in the mix, that is tends to be a red flag. The best companies don't need people to front for them in front of themselves.
Yeah, that's a good point. And again, I keep bringing this up. But it's amazing how many parallels that that also applies to media. Like, we want to hear from the founders directly. It makes no sense for us. We're warm intros, again, we used to be a good Avenue, they're not really anymore because of things like because we want to check our biases and make sure that we're like casting a wide as wide a net as possible, right. And I assume that's another reason why you're seeing it go away. And kind of the investment community, right is like, no, let's get outside of our bubble. Right, like,
let's see what else.
I did have another question here. And this one is another anonymous asker. But how do you? What is the actual process for cleaning up a board? I think you mentioned that, you know, you put it in as a condition of coming on as an investor. So that sounds like it's one mechanism. But how do you actually go about doing that?
Yeah, look, it's it's hard. You know, again, the better the more honest, the more open relationships you have with your board members, the easier it is to have that discussion. But you know, it's not easy, right? Because people may have probably have legal rights to some board seats and these kinds of things. So the two main catalysts you can find the first is a future funding round, right? So if it's a Good late stage investors, I look at the board and say, hey, that's, that's the wrong number of people. That's the wrong type of people. So let's figure that out. And then you can have a conversation, again, which is like not duplicitous, but is open and honest between the latest stage investor and the CEO about what's the right board for this company at this point. And that can become a conditioner term sheets, and that's often a helpful catalyst. Not without, yeah, sure, they'll be debates, I'm sure they'll be disagreements, but that's a good way of doing it. The other way actually, is by running these board surveys, right? So often what might happen is, you know, you want a board survey and you know, 15, people will say on the board will say this board is too big. And I should definitely be on it. And so that's but like, at least having that this board is too vague. And we make decisions too slowly. If the board has said that themselves, it like gives you a catalyst to have that conversation about how to fix it. And that might be again, you can run that process at that point of trying to slim it down. It might be that, you know, you have an independent, one of the independent board members you trust, to kind of try and corral that feedback, and then use that as the catalyst to slim down the board. But I think having a catalyst, either board feedback or latest self feedback, or a later stage round is super helpful. If the other thing that's you know, I would say again, is that there is this fudge option open, which is the kind of creation of like an inner board, or a operating committee or something that can kind of bridge you until you can fix it properly.
Right. And that's that's essentially just kind of like making subcommittees and then kind of like
having a committee Yeah, like, so you might have thought the board meets every quarter. But there's like a subcommittee of like, 45 people that meet more regularly and that were real debates can happen, because it's hard to have a debate with 15 people in a room.
Yeah, that makes sense. How about this is another anonymous question. But what is the specific risk with observer seats? So I guess, what's the danger there? And how do they kind of compare and contrast to regular seats?
Yeah, I mean, I'd say like, you know, I've been an observer early in my career as observer a few times. And, you know, like, mostly observers don't observe, right? There's very, there's in general, 80%, to 9%. And that includes me, by the way, 90% of the boards I've been on, there's very little difference between the observers and the board members. It's just not how people operate, right? Like, just not how people are. And so then it just fills the room with more people, right, even if they are observing it's kind of odd situation, if you've got six people sat with the board members and six others around or kind of watching. And so, you know, you just think just changes the dynamic of the room, it just changes the dynamic of, you know, so I think that's where the danger is, is just simply more bodies in the room now. Can you find ways to kind of being an observer was super good in my early career as a young investor to like, see how the boards function and stuff? So you can you know, can you find ways to have people at listening in on the phone or something like, maybe, maybe you can, but it's just it, even that creates this feeling of being in a forum rather than being in a team?
Right? Right.
Yeah, anybody who has a voice has influence, right? Even if they don't have a vote, and that's always gonna muddy the waters, I guess.
Honestly, even if, you know, even if they don't have a, you know, even if they don't have a voice, right? I mean, you know, you and I doubt we're having like a conversation, it's probably different. The conversation would be high, even if it wasn't other people watching this. That's right.
Yeah, it's physics.
You know, it just does change the air and like, people are less willing to like have the proper disagreements, proper debates and discussions that you want to have to really come to good answers. When there's 10 other people watching, and it's like five or six people who know each other, trust each other, and can do that from a position of like, you know, mutual respect. And yeah,
that's a great point. I think we have time for about one more question. So we have a question here. Is, is it useful to set expectations about serving terms at the outset when you bring on board board members?
I think it totally can be and as unlike finding mechanisms for reviews, which also, again, the surveys are also useful for having things like that set up in advance is like really helpful. Yeah, if it's an investor board seats, often they will have it as a legal rights. But what is it okay, I think it's the sort of so you've got to be struggle to find an investor who like is gonna offer you who's put in $50 million. Your company is gonna like say, Oh, I could have that board seat taken away from me after three years. But I think would be okay as say, like, after three years, we should sit down and review like, Are you the right person to have that board? Or should we transition that out to a different member of your firm because something didn't happen? something's changed about to stage a company or to an operator, or whatever I like, obviously, that's your call. But we'll have that discussion. So I do think putting those checkpoints in is like is a really valuable thing to be able to do.
Yeah, it sounds like anything that you can have in terms of tripwires or ammo to trigger these discussions is very useful, regardless of whether you exercise them or not.
But I think Yeah, but like, making sure you have these discussions and are honest, open. And like, treat treat, treat your board members as colleagues and as people who you you would treat like any other member of your executive team, I think is is the core message, I think, yeah. And that's just again, it's about respect. And it's about making sure you create a culture of honesty, openness, feedback. And again, as I say, like, really focusing on the mission of the long term, and not focusing on anyone's individual grandstanding or their role or their importance, like building that culture from day one was about the right people. And that right cultural distinction, I think, is kind of everything and then from there, you know, all good stuff before.
Great. Well, thanks very much, Dave. Hopefully everyone watching will go and build great boards. Appreciate your time.