Published: Jan 17, 2023
Focus:
Insights
A business’ board represents the interest of all shareholders and performs a number of functions including supporting management in making strategic decisions affecting the short-term and longer-term direction of the business; and reviewing business performance and holding the management team accountable on a monthly or quarterly basis. The most effective boards add more than just governance, providing guidance, perspective and access to their networks.
High growth companies are unlikely to be able to achieve their full potential without the right people at the helm driving growth. Building the right team is about bringing together the best possible mix of people and skills for the business at that stage of its development, as well as making sure that each individual is in the role to which they are most suited. Achieving the right balance will increase value for the business and its shareholders. Investors will look closely at the make-up of the senior team and how their collective skills complement one another, to assess whether they can adapt and persevere through the inevitable highs and lows of their company’s development.
Board composition will evolve over time and founders/CEOs should give thought to who should join their board and at what stage. Earlier in the growth journey, boards are more likely to be controlled by the founder however as businesses scale and raise investment, the size of the board is likely to increase, and the founder’s influence reduce. While it is common that the lead investor of each funding round will require a board seat as part of their terms of investment, further appointments should be allocated based on how much value the person will bring (e.g. to individuals with particular skill-sets or sector expertise). Having too many board members can be cumbersome, slow decision making and stifle growth.
Investors will look for strong leadership, a robust finance function and effective governance. The CEO as leader of the organisation is crucial, they must have a clear plan and the ability to motivate and inspire their team. CEOs with a proven track record or who have successfully grown and exited a business in the past are often looked upon favourably. Every business is expected to have accurate financial information and a finance function that is appropriate for their stage of development (although it is likely that this will be supplemented post-investment and as the business scales). Companies with reliable financial information will stand a better chance of securing investment than those whose information is out of date or inaccurate. The role of Chair becomes increasingly important as companies grow, providing a link between management team and investors, managing expectations and ensuring alignment. The Chair can add further value by acting as a sounding board for the CEO, ensuring proper governance is implemented and scrutinising strategy.
Prior to an investment all investors will spend time with the board and management team to better understand their motives and drivers. Receiving investment is like entering into a partnership; the interests of the investor, the company and senior management need to be aligned. Ultimately, investors want to support teams that are credible, passionate and that they can build a relationship with. While it needs to be the right fit for all parties to optimise value creation, if the quality of a business’ board isn’t strong enough, it is likely they will struggle to raise funding.
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