It´s often hard to find any data or "best practices" information for boards of private, ventured-backed companies, but last month the National Venture Capital Association and VentureOne released a study on practices and attitudes at venture-backed company boards. It revealed that exit strategies, financing rounds and management issues are the top three concerns among venture capitalist and the CEO´s of the companies they back.
The study called "A Seat at the Table," reflects more than 700 responses to surveys sent in early 2006 to venture capitalists and CEOs of venture-backed companies in the U.S.
The survey found that while the VCs and CEOs are thinking about the same issues, their perspectives and priorities often differ. The system works, according to Mark Heesen, president of the National Venture Capital Association, "because the VC and CEO interaction brings out the collaborative nature of the entrepreneurial process."
One thing the study found is that CEOs would like to see their VCs sit on fewer boards, no more that 4 for early stage companies or 5 for later stage. VCs believe they can sit successfully on 4.6 early stage board and 5.
VCs at smaller firms (under $250 million under management) sat on fewer boards than those at larger firms (more than $1 billion under management) averaging three and five seats respectively in 2005. Geographically, San Francisco Bay area VCs averaged the highest number of board seats at five per VC whereas regions such as Research Triangle, Southern California and Washington state averaged only three seats per VC.
Almost two-thirds of the venture capitalists surveyed expect to increase their board participation in the next two years. A board seat held by the venture capitalist or a coinvestor was a pre-requisite for investment for 81% of the VC respondents.
The survey asked the respondents to rank strategic issues that are of most concern for VC-backed boards. Overall for the full board, the issues of greatest strategic concern are management transitions and exit strategies, according to the venture capitalists surveyed and financing strategies and exit strategies according to the CEOs. Both VCs and CEOs cited Sarbanes Oxley compliance and stock option valuation as the top two concerns of audit committees although more venture capitalists than CEOs were concerned about Sarbanes Oxley. While 65% of VCs stated that Sarbanes Oxley has impact the Board´s ability to find outside directors, only 21% of CEOs agreed.
When it comes to the most common drivers of conflict between the board and CEO, venture capitalists cited personality conflicts, exit strategies, and management changes as the top three issues while CEOs named valuation, burn rates, and exit strategies as being the most common causes for conflict. The most common reasons for changing leadership according to the venture capitalists are to find someone with more sales and marketing expertise and operational leadership.