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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Boards of Venture Backed Companies – “After The Term Sheet” (Jaffe / Levensohn)

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I recently discovered an outstanding article by Dennis Jaffe (Saybrook Graduate School) and Pascal Levensohn (Levensohn Venture Partners) titled After The Term Sheet: How Venture Boards Influence The Success Or Failure Of Technology Companies.”  Written in 2003, this is one of the best articles I’ve ever seen of the issues and dynamics surrounding the board of a venture backed company.

The paper covers a lot of ground.  It starts by exploring how the board adds value to the enterprise (through social, intellectual, and interpersonal capital) and then describes in details the attributes of successful boards, which include:

  • Company-first governance
  • Focus and narrow vision
  • Customer-focused point of view
  • Complementary mix of talents
  • Decisiveness
  • Mutual respect and regard
  • Strong communication with the CEO

It then goes on to talk about the role of the board at different stages of development of a company (start-up / seed, early commercialization, and productivity / expansion) followed by a long discussion of the desirable personal attributes of strong boards, such as:

  • Emotional stability
  • Strong interpersonal communication skills
  • Pattern recognition skills
  • Ability to partner
  • Investment and operating experience
  • A strong network of business contacts
  • Ability to mentor the CEO

The article then becomes prescriptive and covers the ten common pitfalls of boards:

  • Complacency
  • Inability to confront difficult issues
  • Distraction and over-commitment
  • Misalignment of interests between Board Members and investors
  • Divisiveness on the Board
  • Paralysis over liability issues
  • Board Member role confusion
  • Leadership vacuum
  • Loss of trust in the CEO
  • Resolution to fail

The article then discusses the key relationships of the board (board / CEO, board / company, and board / shareholders) and finishes with conclusions and recommendations for boards, such as:

  • Developing a self-assessment and performance tool
  • Creating an open information-sharing system
  • Facing emotional dynamics as they arise
  • Holding a Board retreat

Overall, this is an awesome article that I recommend be read carefully by any member of the board of a venture backed company.

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