In the venture capital world, boards are made up of the founder and the venture capitalists who have backed the company since inception. Most companies that go public have boards laid out according to this model – no outsiders allowed!
When a company is within 18 months of an IPO or major M&A event is precisely the time to add 1-2 statured independent members to a board. Here are some of the reasons why:
- An experienced outsider knows how to prepare a company for the market and will be objective about how to prepare the company for this event.
- Statured independents usually understand the market far better than long-time insiders. They can help a company ‘tune its approach’ against the time when bankers and acquirers come to call
- Venture capitalists know a lot about how to buy and assess a company early. They know little about preparing companies for the global financial markets.
- Small changes to accounting systems, management teams and product approaches can has enormous impact on the value of a company when it’s ready to consider IPO or M&A.
In addition to perspective and market knowledge, statured independents can do a lot to extend the networks of the board – with Rolodexes of Wall Street resources, professional services firms, technology partners, etc. By working closely with investors and the team, the independent director can add as much as 50% to the value of a company, at a fraction of the cost of adding even a mid-level manager to the team.