“Let’s look at the term sheet,” Marcia, our lawyer, said to me.
“It looks pretty good,” she said. “There’s nothing out of the ordinary. The terms are normal. In fact, they are quite generous.
“The board composition looks normal too. The investors are proposing a five man board. Each investor will get a seat, you will get a seat, and there will be two outside board members.”
So we started life as a three-man board. It was me and our two investors on the board. And we could add two outside board members.
When we were about one year into the company’s post funding life, I went to the investors and told them I wanted to add an outside board member. The investors agreed to my suggestion.
You don’t just get to choose who you want to be on the board. Your investors get a vote too.
One of our investors, “Raul”, said he wanted someone with sales experience. I thought of my old friend Bill because Bill had run sales at Maxim, our large competitor.
Gill, my other investor, suggested Barry*. Barry had run sales for various parts of Intel, and he and Gill had worked together in the past.
So Raul met with Bill, and I met with Barry. Barry and I met a couple of times for lunch so we could get to know each other.
I liked Barry, and he was very free with his advice which I liked too. However, I wasn’t sure if he was right for us now.
Raul’s feedback was equally ambivalent about Bill. “I’ll support him being on the board if that’s what you want,” Raul said. “However, I think you can do better.”
In other words Raul was politely saying, “Keep looking.”
However, I did wonder why Raul wasn’t more forceful if he didn’t believe Bill was right for the board. Didn’t the board have the true power? I’ll get back to this later.
I called Barry to let him know we would be looking for someone else. Barry was gracious, and we agreed to keep in touch.
I thought my good friend Cathal, the CTO of Cypress Semiconductor, might be a good fit. Cathal and I had lunch, and I asked him if he was interested in joining our board. He said he was, so I introduced him to Raul.
Cathal got approval to be on the board from his CEO (always make sure things are above board), and he met with Raul.
Raul called me after he met with Cathal, and he said, “Why didn’t you have me meet him first? He’s great!”
Cathal was in.
We operated as a four man board for the next year.
I know what you’re thinking. “How can you run a company with an even number of board members. What if there is a tie in the voting?”
The reality of a board of directors is much different than you imagine it to be. And it’s telling about how experienced venture capitalists view a board of directors.
The power is with your investors, not the board.
Whether’s it’s politics or business, you always follow the money because that’s where the power is. That’s why it’s important that you don’t get so worked up about maintaining control of the board.
Board control is an illusion. Just ask Travis, ex-CEO of Uber. He needed more money to keep Uber going, so he needed his investors.
However, Travis’ investors were unhappy with him. So, even though he had all the voting control of Uber, he was thrown out as CEO.
We expanded to a five man board about one year later.
Raul liked Cathal, but he still wanted someone with sales experience on the board. So he pushed for us to add another board member.
I thought that now was the right time to add Barry, so I had lunch with Barry again, and I asked him if he was interested in joining us. He was.
Gill loved Barry, so there was no issue there. However, Barry and Raul had a history (whenever you hear someone has a history, it’s usually not good).
Raul and Barry met, and Raul agreed to bring Barry on as our Chairman.
According to Barry, Raul had reneged on a financing deal of a company Barry was CEO of. Raul’s dirty tricks almost caused the closure of Barry’s company.
I believed Barry because Raul had just done the same thing to us. And we were in scramble mode. Part of Barry’s charter was to help us raise more money.
We ended up raising money through our own network, not Barry’s. However, Barry was a huge help to me.
Barry helped me manage the relationship with Raul. Raul was becoming increasingly difficult to deal with as the year went on.
We would get a term sheet, and then Raul would say no. Then Raul would add extra terms and remove terms with little or no reason.
Gill, Barry, Cathal and I were all getting frustrated with Raul’s behavior. That’s why I was happy to let Barry interface with Raul. It saved me a lot of angst and kept me (somewhat) sane.
*Barry passed away in 2017 after battling brain cancer. I will miss him.
For more, read: What Are The Five Fatal Mistakes That Will Kill Your Business?