Guest Contributor Matt Dunbar is managing director of the Upstate Carolina Angel Network.
For more information about investing in early-stage companies, or questions about the upcoming boardroom workshop, contact Matt Dunbar at matt@upstateangels.org.
For entrepreneurs, the hard work begins after the angel investment has been made
Startups. Crowdfunding. Accelerators. Fundraising. The popular press is abuzz these days with the language of entrepreneurship – as well it should be. With transformative shifts in the corporate and career landscape in recent decades, and with the relatively new understanding that all net job growth in the economy comes from startups, it is increasingly important that businesses and communities gain a better understanding of the processes and ecosystems that support and sustain entrepreneurial endeavors.
Among today’s literature on entrepreneurship, one of the most prevalent topics of focus is the notoriously difficult task of raising capital for early-stage ventures. But for those fortunate entrepreneurs who are able to convince an angel investor or venture capitalist to make an investment, there seems to be much less written about what happens after the celebratory closing. And of course, that’s the point at which the really hard work of building the company has just begun.
One of the most important things that takes place following an investment is the formation or restructuring of the company’s board of directors. The board plays a critical role in the post-funding life of a high-growth company, but many entrepreneurs and early-stage investors have relatively little experience serving as a director of a startup. Some of the key questions and challenges are straightforward like most other boards, and others are much more difficult to untangle.
For example, here is just a sampling of key questions the startup board must tackle:
How should the board be structured?
Typically, investors will expect a five-member board, comprised of the CEO and possibly another senior team member, two investor representatives and one or two independent directors.
What are directors’ key priorities?
As with any governing board, startup directors owe the standard fiduciary duties of care and loyalty, and they have the responsibility of hiring (and firing) the CEO. In a startup, however, the directors must also have a laser focus on never letting the company run out of cash and driving strategic value for a buyer of the company.
What are the risks directors face?
Even with solid directors and officers insurance in place, startup directors should be aware of the potential relational, reputational and financial risks of serving on startup boards.
For angel investors serving as directors, and for entrepreneurs who may serve on their own boards, formulating the answers to these questions is critical. For entrepreneurs, the more they know about how a board operates and their role in it, the more impact they can have on the success of their venture. For angel investors, learning to become a strong leader and expert in the boardroom can significantly improve their investment returns.
Given the vital importance of these and many other board issues for high-growth startups, UCAN will devote its 2013 annual Angel Education workshop to “Navigating the Boardroom.” The half-day workshop will provide a deep primer on the most important topics a board will face, including board structure, minimizing risks, optimizing returns and the eight most common board events.
The workshop is scheduled for the afternoon of Dec. 4 from 1 to 5 p.m. at the Upcountry History Museum, with a reception to follow. The workshop is a program of the Angel Resource Institute, in partnership with the Kauffman Foundation, and the lead instructor for the event will be John May, chairman emeritus of the Angel Capital Association and one of the leading pioneers of angel group investing in the United States.
If you are an entrepreneur, investor or startup support professional interested in learning more about how to create value through a startup board of directors, please join us for this highly engaging workshop. You can register today at ucanboardroomworkshop.eventbrite.com.
Reminder for Angel Investor Tax Credit
While we’re on the topic of startups and investors, we wanted to offer a quick reminder that as of June of this year, South Carolina now has a 35 percent income tax credit for angel investors who invest in qualified startup companies based in South Carolina. If you started a high-growth-potential company after Jan. 1 of this year (or will do so before Dec. 31), you can apply to be a qualified business by completing an application available in the forms section of the S.C. Secretary of State’s website.
If you are an accredited investor who invested in a qualified business in 2013, you have until Dec. 31 to submit an application to claim the angel investor tax credit. The form is now available on the S.C. Department of Revenue website in the tax credit section.
