Oct 02 2024 17 mins
In this podcast, Dr Sabine Dembkowski, Founder and Managing Partner of Better Boards, discusses tech boards with Irene Arias Hofman, CEO of IDB Lab, the innovation and venture laboratory of the Inter-American Development Bank Group.
“We do care a lot about the principles, the values, the incentives”
Irene begins by outlining that when evaluating tech boards, especially in startups, investors focus on several key elements. Using her organisation’s portfolio as an example (which includes startups typically at Series A or B stages), she explains that they pay close attention to the governance of both the startups and the venture capital (VC) funds they often invest alongside. They believe that the governance of portfolio companies and VC funds is crucial, although the governance of each differs significantly.
“They need to a bring in a whole set of other aspects…. that they didn't have to worry about when they were just a two people team”
From an investor’s perspective, Irene describes how a good board in a startup balances technical expertise with broader strategic and corporate skills. As the company grows and becomes more institutionalised, the board needs to expand its skill set to include governance, organisational management, social skills and strategic foresight.
“They have more control… or more choice than maybe they think in terms of who's on the board”
Irene then outlines how successful boards differ from struggling ones in several key ways. First, they ensure the right fit of board members rather than simply accepting any investor who offers capital. She notes that startups often feel they have limited control over their board composition, especially when large investors demand board seats. However, successful startups are, in fact, deliberate about selecting board members who bring real value.
“Only 6.2% of board seats in unicorn companies are held by women”
Board diversity is also a distinguishing factor. Data shows that companies with women on their boards perform significantly better, yet Irene notes that women still hold only a small fraction of board seats in unicorn companies.
“It's become trendy, and it can be good to say you are on the board of a high-growth tech startup”
A good board member in the startup context needs to be highly available and committed. Irene points out that while it has become ‘trendy’ to be on the board of a high-growth tech company, the real value comes from being genuinely invested in the company’s success.
“You really want to know: are you gonna build a sustainable business”
When it comes to tracking a startup's progress, Irene relies on a few key KPIs that provide a solid understanding of the company’s health and sustainability - the burn rate, the lifetime value (LTV) of a customer, and the churn rate.
The three top takeaways for effective Tech boards are:
1. As a startup, you may be able to pick your board members more than you think, so do not feel pressure to give up board seats to investors to get investment. It has to be a good match to build the right skill mix.
2. That skill mix will evolve rapidly, just as the startup does. You will have to pivot your strategy. For example, if you become very successful, then very quickly, you need to become much more sophisticated in how you are run. So be ready to evolve, including evolving the composition of your board.
3. Be mindful of bringing in board members who believe in your vision for the company and can contribute diverse views.