Jonathan HarrisFounder - Spinouts UK

Jonathan Harris

Who’s On Board?

The makeup of the board of directors in an early stage venture with high growth potential is crucial to its success. There are many bases to be covered. The board needs to include strong business development skills, people with a firm grasp of the venture’s finances and its future funding needs, someone (often the chairman) to deal with high level issues for example with investors, customers, or the founders, and much more.

Board directors have many statutory duties and obligations, and their role is to oversee the soundness of the business as it progresses – keeping it legal and responsible – and to advise on its future direction. It can be difficult to attract experienced people to a young company, which however promising is at significant risk until it reaches maturity, and most young companies are hard-pressed to match the remuneration packages which many such experienced directors can command.

An Advisory Board

There is another way of tapping into at least part of this experience, namely an advisory board. This will typically consist of a number of industry experts – usually between five and a dozen – who are asked to help the company to understand how robust (or otherwise) its technology might be, or how it will match up against the competition. The board might also give general business advice on the company’s activities, commenting on anything it does of which the member has previous experience and can give helpful precautionary advice or informed encouragement.

Board of Directors vs Advisory Board

Unlike a board of directors, an advisory board has no specific legal duties, and can be convened at less frequent intervals, often quarterly. This means that candidates who might not wish to take on a director’s role might be prepared to be on an advisory board, and from the company’s point of view, if an advisory board member is to be remunerated, this should be considerably cheaper than taking on a director. In many cases it can be possible to put together an advisory board without any formal remuneration other than a business lunch, and the opportunity to engage with other high level individuals with similar interests.

Planning Your Advisory Board

It is also the case that once a well-known individual has agreed to be on the advisory board, it becomes easier to recruit others. If a company say in the life sciences sector can attract one or two experts in its own field of expertise, maybe starting with an academic whose work underpins the new venture, this gives potential investors and others engaging with the business considerable confidence in its potential.

The advisory board should be planned as a whole entity, rather than built piecemeal with invitations to one member at a time. Start with the most prestigious person you would like to have, and ask for his or her guidance in putting together an effective group. If the first appointee is an enthusiastic ambassador for the business (which is the ideal), he or she might well be prepared to invite others to join.

To make the process truly helpful to the company, meetings of the advisory board should be planned with the same attention to detail as a meeting of the board of directors, with a well-prepared agenda, and minutes circulated to all members. It is up to the company whether to take up any of the suggestions or comments made by the panel, but if its members are as knowledgeable and experienced as is hoped, the company should give a full response to all comments, possibly to elicit further guidance.

Just Remember

It must always be remembered that the advisory board has no direct responsibility for the company or its activities; at the very least, strong financial governance is still required. The advisory board is not a replacement for the board of directors, but a supplement, and should be designed accordingly.