Ryan Caldbeck, co-founder and former CEO of consumer-brands-focused investment platform CircleUp, recently published an email he’d written to a former director on the board of the company.
According to Caldbeck, he wrote the letter after CircleUp had bought out the investor’s firm because he wanted to provide constructive feedback, given that this individual’s “involvement was incredibly difficult for all of CircleUp and our board,” as he explained to this person, whose identity was shielded.
The saga begged questions about what happens behind the scenes at startups and about board composition specifically. But Caldbeck’s situation may be more anomalous than not, suggest some veterans of the industry who have common sense advice around how to avoid problematic board members and how to deal with them if they can’t be avoided.
First, and most obviously, get to know a potential board member as well as possible because who winds up as a director with your company can be a “life-changing decision” in both good and terrible ways, says Joel Peterson, a professor at Stanford’s business school, a former chairman of JetBlue Airways and the founding partner of Peterson Partners, a Salt Lake City-based firm that invests directly in startups and has stakes in many venture funds.
Peterson’s advice is to “interview investors just as they’re interviewing you,” including not only to get a sense for whether someone is knowledgeable and shares your same values but also to get a sense for how much time they have for your company. In his view, venture capitalists are “often the worst board members while angel investors are often really good because they really care about the entrepreneur and have a more hands-on connection with them while they’re developing the business.”
Another piece of advice from Peterson is to be mindful of VCs known to push hard and to want founders to hire fast. Not every company is blitzscalable from the outset, yet Peterson — who says that “many of the VCs who I know are not that patient” — observes that in their quest for that “10x to 100x return,” VCs tend to “line up their companies and shoot the ones that aren’t making it.”
Of course, there are other ways to minimize the odds of developing the kind of toxic relationship with a board member that Caldbeck looks to have endured. Longtime venture recruiter Jon Holman says that top among these is working with people who have served on startup boards before.
Think that’s a no-brainer? It’s not, particularly given the many people to have entered the world of venture investing in the last five to 10 years as the economy has soared. (Indeed, in that same letter, Caldbeck notes that the individual to whom he is writing was relatively new to professional investing when the two first crossed paths.)
If you bring someone on as a director without that experience, “it doesn’t mean that person isn’t smart,” says Holman. “They might be absurdly smart,” he says. Just be warned that “what they know about building companies, raising money and management styles can be nothing whatsoever, and it’s often the least confident people who make the most noise.”
Holman says another pitfall he has seen centers on founders who say yes to the biggest check, with too little concern about who’s writing it. “People who make the highest offer often can’t get into best deals and — guess what — there’s sometimes a reason for that,” he observes. Look instead for someone who is going to add value to the board, particularly if that individual has expertise in an area where your other directors do not.
Some of this is easier said than done, you might be thinking, especially when facing limited options. Besides, it isn’t always obvious straightaway when someone has a difficult personality. What happens when, despite your best efforts, you end up with a problematic director anyway?
Holman says that in his experience, the best way to address an issue is to be direct — with another board member. While trying to manage the issue one-on-one may feel like the cleanest way forward for a CEO, it can create an uncomfortable situation that’s hard to repair if the conversation doesn’t go quite as planned.
Feedback from a trusted peer can meanwhile be effective, says Holman. “If a [more experienced director] can say, ‘This quality of yours has been observed to me by multiple people, and I present this to you as a fact,’ the person [on the receiving end] is often really thankful.” (In his letter, Caldbeck writes the investor that “it is worth trying to get some mentors who can give you candid feedback.”)
It may not work straightaway. Sometimes, as with Caldbeck, more extreme measures are needed. But if it’s any consolation, you may well be helping the next founder who agrees to do business with this individual. Says Holman: “It’s amazing how many people don’t understand how they’re perceived.”